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European inflation and central banks in focus

A look at the day ahead at European and global markets from Ankur Banerjee UK inflation may have returned to its 2% target for the first time in almost three years, paving the way for the Bank of England to cut rates – but not on Thursday.

An unchanged interest rate decision will be a disappointment for Prime Minister Rishi Sunak, who is looking for an economic boost ahead of next month’s general election. His Conservative Party is about 20 points behind the opposition Labor Party in pre-election polls. Wage growth and underlying price pressures remain a concern for the central bank, which has said that a return of inflation to its target is not in itself enough to start cutting rates.

Data on Wednesday showed consumer price inflation stood at 2% year on year in May, a slowdown from 2.3% in April, although services price inflation, which the BoE says provides a better picture of inflation risk in the medium term, was 5.7% above expectations. So things under the hood look murky, leaving Bank of England Governor Andrew Bailey little choice but to wait, with markets not fully pricing in a rate cut until November.

Bailey opened the door to a rate cut early last month, saying he was “optimistic that things are moving in the right direction”, but figures since then have been less reassuring. Nearly all 65 economists polled by Reuters last week expect the bank to take action in August, with traders putting a 30% chance of this happening.

With Bailey and his colleagues canceling public events as Sunak called the May 22 election, markets have had very little insight into what the central bank is thinking and there could be a surprise in store. However, economists surveyed showed there would be no surprise if the Swiss National Bank were to cut its key policy rate by 25 basis points later in the day due to steady inflation. The Norwegian central bank is widely expected to hold its ground.

Futures contracts signal a subdued start for European stock markets as Asian shares took a breather following a technology rally led by US chipmaker Nvidia. The focus will again be on French markets after the European Commission said on Wednesday that France and six other countries should be disciplined because their budget deficits exceed EU limits.

French stocks and the euro are under pressure as political uncertainty in France and the possibility of a far-right dominated parliament undermined sentiment in the wake of President Emmanuel Macron’s decision to call a snap vote. Key developments that could impact the markets on Thursday:

Economic events: policy decision of the Bank of England, the Norwegian bank Norges and the Swiss National Bank (by Ankur Banerjee; editing by Christopher Cushing)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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