Market Commentary 25th March 2025 – from Charlie Hancock

The Bank of England (BoE)’s monetary policy committee voted to keep interest rates on hold last week, with the base rate remaining at 4.50%. The central bank’s governor, Andrew Bailey, stated that the BoE’s policymakers believed rates were “on a gradually declining path”, but added “there’s a lot of economic uncertainty at the moment”.

The Office for National Statistics (ONS) reported that 124,000 people were made redundant between November 2024 to January 2025, up from 99,000 during the previous three month period. The overall unemployment rate remained at 4.4%. The ONS also reported that the average annual pay increase during the same period was 5.8%.

Germany’s parliament voted to go ahead with plans for increased borrowing to fund infrastructure and defence spending. The vote was won by a sizeable majority, indicating that the incoming coalition government may adopt a looser approach to fiscal spending in the future.

The European Union (EU) delayed the implementation of retaliatory tariffs on US goods until 13^th April, with EU officials stating they wanted more time for discussions with the US. Meanwhile, the European Central Bank’s president, Christine Lagarde, said that the tariffs proposed by US President Donald Trump could cut Eurozone economic growth by 0.3% a year.

The Federal Reserve kept interest rates on hold following their policy meeting last week. The central bank’s policymakers indicated that they expect to cut interest rates by 0.50% this year, whilst lowering their forecasts for economic growth and raising their forecasts for inflation. The Fed’s chair, Jerome Powell, stated that the economic impact from tariffs implemented by the Trump administration is likely to be ‘transitory’.

Economic data painted a mixed picture. Retail sales in February rose by 0.2%, which was significantly lower than the median economic estimate of a 0.7% increase. A survey on manufacturing firms in the New York area indicated activity dropped sharply in March. On a more positive note, the real estate sector saw an improvement in February, with existing home sales rising by 4.2% in comparison to January and new housing construction rising by 11.2%.

Economic data in China pointed to an improvement in growth so far during 2025. Industrial output rose by 5.9% in the first two months of the year, while retail sales grew by 4.0% year-on-year. Fixed asset investment growth accelerated to 4.1% year-on-year. The property sector remained a weak spot, with investment in property development falling by 9.8% year-on-year during the January and February period.

The Bank of Japan (BoJ) kept interest rates on hold following their policy meeting last week, which was widely expected by economists. The central bank’s governor, Kazuo Ueda, said that ongoing global trade tensions could pose a risk to the economic outlook for Japan. The BoJ expects it will deliver further interest rate hikes in 2025, with last week’s data on inflation reinforcing this view. The core consumer price index rose by 3.0% year-on-year in February, which was higher than expected.

The BoE’s monetary policy committee signalled that it expects inflation to rise in 2025 following their vote to keep interest rates on hold. This appeared to contribute to UK government bond yields rising.

Bond traders appeared more relaxed about the prospect of higher borrowing in Germany, with Eurozone government bond yields falling across the week.

Although the Federal Reserve expects inflation to rise, the central bank reiterated that it expects to cut rates by 0.50% this year, which appeared to add downward pressure to Treasury yields last week.

GBP / EUR – Current 1.1939 Previous 1.1887

The Pound fell by 0.12% versus the US Dollar last week, with the Dollar rising against most major currencies. Against the Euro, the Pound rose by 0.44%.