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The infoshot to help kick-start your week

Interest rates held in US, UK, Europe and Japan

The Federal Reserve, Bank of England (BoE), European Central Bank (ECB) and the Bank of Japan (BoJ) all voted to keep interest rates unchanged last week. 

Fed board members now expect US inflation to reach 2.7% by the end of the year, up from December’s prediction of 2.4%. Regarding the impact of the war in Iran, Fed Chairman, Jerome Powell, cautioned “We just don’t know what the effects” will be. He went on to express his concern that we haven’t yet seen the last of the price rises from Trump’s tariffs. On the unemployment outlook he said he “was not really comfortable with the balance” created by the admin’s crackdown on immigration and its reduction of the overall size of the workforce. He also pledged to not leave the bank until the criminal investigation of him by the Department of Justice (DoJ) is resolved.

Here in the UK, the BoE held rates and warned the “shock to the economy” from the war could push inflation as high as 3.5% by the summer. The Bank’s Deputy Governor, Sarah Breeden said she “would have expected to vote for a cut again in March” if the war in Iran had not started. In a stark turnaround, markets are now forecasting up to four interest rate hikes this year. However, the Bank’s Governor, Andrew Bailey, did caution those predicting rate increases against “reaching any strong conclusions.”

In Frankfurt, the ECB said they were watching closely and ready to act if rising oil prices started impacting growth and inflation. The duration of the conflict was top of their concerns, adding, “A prolonged disruption in the supply of oil and gas would result in inflation being above, and growth being below, the baseline projections.” Over in Tokyo, BoJ Governor, Kazuo Ueda, said “the governments’ stimulus measures will likely underpin the economy” and that before the conflict, “household and corporate activity had been firm.”

Mixed messaging on conflict leads to another volatile week in markets

On Monday, US allies had to react to Trump’s call for them to help protect and reopen the Strait of Hormuz. President Trump pleaded, “They should come and they should help us protect it. You could make the case that maybe we shouldn’t even be there at all, because we don’t need it. We have a lot of oil. We’re the number one producer anywhere in the world times two.” So far, his calls for help have gone unanswered.

The next day, the Director of the US Counterterrorism Center, Joe Kent, resigned over the reasons for starting the conflict and urged Trump to “reverse course”. His words seemed to fall on deaf ears with the Pentagon sending another 2,500 marines to the region and the White House calling for another $200bn to fund the war effort because according to US Defence Secretary, Pete Hegseth, “It takes money to kill bad guys”.

Gas prices shot up 23% on Thursday after Israeli air strikes hit the South Pars gas field. In retaliation, Iran stepped up their attacks on energy facilities across the Middle East. The attacks on Qatari sites infuriated Trump, leading him to threaten to “massively blow up” the world’s largest gas field. 20% of global liquefied natural gas is produced at the South Pars facility.

This weekend, Trump’s rhetoric sparked another market selloff after he threatened to strike Iranian power plants. While writing this morning, Trump has postponed any airstrikes on power plants and energy infrastructure for a five-day period depending on the “success” of “meetings and discussions”. Markets have reacted positively to the news and in the UK, the FTSE 100 has gone from being 2% down earlier to 0.95% up now.

WTO warns conflict could “crimp” AI boom and Reeves announces “Quantum Leap” package

In the world of tech, the World Trade Organisation’s (WTO), Chief Economist, Robert Staiger, warned high oil prices could “crimp” the AI boom, saying “There is an interesting possible interaction between the Middle East conflict and the AI boom, in part because the boom is very energy-intensive” and “If the price of energy continues to be elevated for the whole year, that could put a crimp on the AI boom”. According to WTO calculations, 70% of all investment growth in North America during the first three quarters of last year can be attributed to AI-related goods. 

Chancellor Rachel Reeves and the Technology Secretary, Liz Kendall, unveiled the £2bn “Quantum Leap” package of measures to help the UK become the first country to roll out quantum computers at scale by the early 2030s. By utilising the theories of quantum mechanics, quantum computers use qubits instead of bits (aka zeros and ones) to process thousands of data points at once and dramatically speed up the process for finding solutions to certain problems. The government estimates success in quantum computing could add another £200bn to the UK economy by 2045.