Key facts
- British Pound futures fell near daily lows.
- UK final manufacturing PMI for May hit a four-year high of 53.9.
- UK services PMI fell to 49.3, below the 50 expansion threshold.
- The US proposed additional tariffs of 10% to 12.5%, with the UK in the 10% tier.
- BOE Governor Bailey stated markets have been orderly but stressed at times.
- UK 10-year yields have moved down from recent highs.
- The Bank of England is holding its target rate at 3.75%.
British Pound futures declined, closing near daily lows, influenced by a US proposal for additional tariffs of 10% to 12.5%, with the UK specifically designated for a 10% tier. This occurred despite the UK's final manufacturing PMI for May reaching a four-year high of 53.9. However, the UK services PMI fell to 49.3, below the 50 threshold, signaling a potential slowdown.
Bank of England Governor Andrew Bailey acknowledged that markets have experienced periods of stress, attributing some of the current inflation to the Middle East conflict. He stated the Bank should not raise its inflation target from 2% and is tolerating above-target inflation temporarily. Bailey noted a widening gap between public and private sector wages and is reconsidering its impact on inflation signals. The BoE's target rate remains at 3.75%, with markets currently pricing a low chance of a move on June 18. The outlook has shifted from expected rate cuts to a scenario where a hike is more likely than a cut if energy prices continue to rise, with any easing now pushed to late 2026 at the earliest.