Market Report: Inflation drop paves way for rate cut
Emma Wall, chief investment strategist, Hargreaves Lansdown: “It’s the print that the Monetary Policy Committee doves have been waiting for – inflation in the UK has come in at 3.2% for November, down from 3.6% the previous month and – crucially – under the 3.4% predicted by the Bank of England. As our Head of Personal Finance Sarah Coles has explained this morning, it’s food prices that helped fuel the fall. After rising the previous month, food inflation fell to 4.2%. She adds: ‘Energy prices also continued to spark lower inflation, as a lower energy price cap rise in October than the year before mean electricity prices are up just 2.8% and gas prices 2.1%. The Budget brought some good news for energy bills, with the removal of charges that are expected to cut the cost by £150 a year from April. Given that otherwise the forecast was for a rise in the price cap in April, this will be a relief for hard-pressed bill payers.’
It means that a rate cut tomorrow is all but guaranteed, though markets should not expect the voting to be unanimous. Today’s inflation data follows Office of National Statistics data that showed wage growth also slowed in the three months to October. A cut to Bank of England base rate of 25 bps to 3.75% is most likely, but there is potential for one or two members to vote to hold given inflation is still above 2% target. This should help indicate where interest rates go in 2026. Our house view is investors and savers should expect two more cuts of 25bps a piece through the year.
The FTSE 100 has reacted well to the news inflation is falling, with broad gains across the piece. Lower interest rates are good news for any corporate with leverage, and has the potential to boost domestic consumption too, which in turn could support corporate revenues. Gilts are also reacting in anticipate of a BoE decision, with yield falling across the curve, most acutely at the short end.
Across the Pond, US markets had a lacklustre day, reacting to economic data – drip fed on a lag from the shutdown. Yesterday’s payroll and unemployment data for October painted a mixed picture, with tech stocks one of the few sectors to rally. In stock specific news, the Paramount-Netflix-Warner Brothers love triangle took another plot twist, with reports that Jared Kushner, son in law of US President Donald Trump would no longer be backing the Paramount bid. Warner Bros is expected to officially reject the Paramount bid today, giving more detail to their decision – which is expected to be routed in concerns about the financial viability of the acquisition. Netflix has been the preferred partner of Warner Bros for some months, though any deal is expected to attract scrutiny from global competition regulators.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Bunzl confirmed it’s on track to hit full-year guidance this morning, with the distributor of packaging and cleaning supplies expecting to deliver broadly flat underlying revenue growth. However, weak guidance for 2026 saw the shares fall by around 6% this morning. This comes as macroeconomic uncertainty is expected to continue into the new year, allowing the group to only squeeze out “modest” revenue growth, while operating margins are expected to decline slightly – with both metrics below market expectations.”