Bank of England and Fed rate decision the main focus next week

1) Federal Reserve rate decision – 17/09 – the calls for the Federal Reserve to deliver a rate cut have gotten louder in recent weeks after August payrolls came in below expectations at 22k, the lowest point since November last year. In reality the pressure had already been building prior to that given the recent shifts in the positions of Fed governors Waller and Bowman at the last meeting who dissented with calls for a reduction of 25bps due to concerns about a weakening labour market. While some have suggested that the recent shifts by Waller and Bowman smack of political opportunism as the hunt for Powell’s successor gains momentum recent data does appear to support this shift. The last payrolls report saw US jobs slow to 22k, while the unemployment rate edged up to 4.3%, its highest level since October 2021. More importantly the recent revisions to the hiring numbers by the BLS showed that a record 911k fewer jobs were added in the year through to March 2025 than was previously estimated, indicating that the slowdown in hiring patterns in the US was much sharper than many had thought. Coming on top of an 818k downward revision the previous year, it is becoming increasingly apparent that there are significant issues within the BLS when it comes to the collection and dissemination of economic data. With some inflation data also showing signs that we could be at a plateau when it comes to price pressures, there have been some calls for a 50bps rate cut this week. While this outcome remains unlikely the pressure for additional rate cuts in the coming months is likely to grow, with 25bps expected this month, and a further cut expected before the end of the year after the latest weekly claims numbers jumped to 263k. The latest inflation numbers showed that price pressures are still on the high side with August CPI coming in at 2.9%, and food inflation at two-year highs, however deflationary pressures have been building with the latest PPI numbers showing evidence of a sharp slowdown in pricing pressures.      

2) Bank of England rate decision – 18/09 – with the UK economy proving to be slightly more resilient than initially thought, and inflation still too high for comfort the Bank of England is in a difficult position with no change in rates expected this week. At the last meeting the decision to cut rates turned out to be much closer than many had predicted with a 5-4 split to cut rates from 4.25% to 4%. Alan Taylor was the most dovish, wanting a bigger 50bps cut but ultimately settling for 25bps. Interestingly Swathi Dhingra who has consistently been the most dovish over the last few years, settled for 25bps. The central bank raised its inflation forecast saying they expected a peak of 4% in September, however the weak growth outlook appears to have prompted the central bank to act. These concerns about the growth outlook won’t have gone away, and are only likely to increase in the coming months; however anyone expecting another rate cut this week is likely to be disappointed. With inflation already close to 4%, the idea that it should cut rates to 3.75%, and below the current inflation rate won’t be a message it would want to send which means any further rate cuts are unlikely to come until headline inflation falls below 3.5%. The holds at the last meeting were Greene, Pill, Lombardelli and Mann. The CPI forecast was raised to 3.8% from 3.5% in 2025, to 2.7% in 2026, and cut to 4.8% in 2027. The bank also raised its unemployment rate forecast to 4.8% from 4.6%, and left unchanged at 4.9% in 2026. Many have been critical of the Bank of England when it comes to its ability to manage interest rates over the years, and while much of that criticism has been justified it hasn’t been helped by the inability of the ONS to do the one job it was set up to do and that is to collate and curate accurate data. For many state-sponsored bodies they are analogue agencies operating in a digital age and currently unfit for purpose. Until that changes the central bank’s ability to manage the economy will be hampered by the quality of data it receives.  

3) UK CPI (Aug) – 17/09 – the level of inflation remains the Bank of England main headache when it comes to further rate cuts. With the base rate currently at 4%, and headline inflation expected to rise further the central banks hands are tied given that on all measures inflation is running much higher than expected. Core CPI also surged in July, rising to 3.8%, while food inflation surged to 4.9%, as the continued effects of government economic policies drove up cost pressures for businesses. Transport also saw a sizable rise due to higher airfares rising sharply ahead of the school holidays, along with higher fuel costs. Against this sort of backdrop, and with service sector inflation also rising faster than expected to 5%. it’s hard to make the case that the Bank of England should be cutting rates at all. In the last 12 months we’ve seen headline inflation go from 2.2%, slowing briefly to 1.7% in September, before surging to where it is now at 3.8%, yet in that time the Bank of England has cut rates 5 time in increments of 25bps, putting the base rate at 4%. When looked at through that lens it’s surprising that we’ve seen 4 rate cuts since the inflation low point of 1.7%, while all the time hearing very little criticism of the central bank, which has as its sole mandate, a 2% inflation target.

4) UK Retail Sales (Aug) – 19/09 – when the ONS delayed the publication of its July retail sales numbers due to concerns over data quality it raised further questions over the ability of this government body to provide an accurate insight into the health of the UK economy. When the numbers were eventually released, they showed that retail sales in July rose by 0.6%, however they also provided a sting in the tail, revising down its estimates for the previous 6-months. The June number was revised down to 0.3% from 0.9%, while the strong gain seen in April was revised to a decline of -0.4% and May’s decline of -2.8% was revised to a -1% decline. These changes to the underlying numbers, with February and March seeing strong gains serve to underline the idea that the tax changes in April cut the legs out from what had been a strong start to the year as UK consumers hunkered down against a backdrop of sharp price increases and tax rises. As the summer holidays wind down, and the UK consumer looks to the autumn and a new school year, will August prove to be a last hurrah as we head towards the end of Q3.  

5) Next PLC H1 26 – 18/09 – the ability of Next to not only maintain its profitability but improve it has been unmatched in recent times, upgrading its profit guidance consistently over the past few quarters. In May the retailer delivered once again, with an 11.4% increase in full price sales, £55m ahead of forecasts. Next management said they believed that this was due to warmer spring weather bringing forward consumer purchases of summer wear. Due to this perceived pull forward, Q2 sales guidance was kept unchanged at 6.5%, however profits guidance was raised to £1.08bn an increase of £14m. Sales guidance for H2 is expected to be weaker at 3.5%, with most of the growth expected to come in H1. Next full price annual sales are expected to rise by 6% to £5.4bn and total group sales of £6.6bn an increase of 5%. Since that assessment in May the shares have drifted sideways with the main focus set to be on how they see consumer trends in H2, and whether sales guidance gets adjusted lower.

6) FedEx Q1 26 – 18/09 – despite reporting a modest increase in Q4 revenues to $22.2bn, in June, as well as an improvement in margins to 8.1%, which helped push profits up to $1.65bn, FedEx shares have struggled to make gains. On a full year basis FedEx reported revenues of $87.9bn and a modest decline in profits to $4.09bn. The improvement in margins was driven by cost savings, as well as lower capex which fell from $5.2bn to $4.1bn in 2025.

It would appear that despite seeing an improvement in Q4, investors were underwhelmed by the guidance offered up for Q1. This week we’ll see if that reticence was justified. On revenues FedEx forecast these to be flat to up 2% year on year, but profit guidance came in under expectations at between $3.40 and $4 a share. FedEx said that its Q1 guidance would include a $170m hit in relation to global trade policy impacts, that’s tariffs to you and me.

7) Darden Restaurants Q1 26 – 18/09 – having seen its share price hit a record high earlier this year, the owner of the Olive Garden chain of restaurants has shown that it appears to be slowdown proof when it comes to its performance. When the company reported in Q4 the restaurant chain reported an 11% increase in total sales of $3.27bn. The Olive Garden business saw sales rise by 8% to $1.38bn, while LongHorn Steakhouse saw sales rise 9.3% to $833.8m. On the downside operating income slowed to $382.8m, while profits came in at $2.98 a share. For fiscal year 2026 Darden said they expected revenue growth of 7% to 8%, and same restaurant sales growth of between 2% and 3.5%, along with the opening of 60 to 65 new restaurants.