Please see below, Brooks Macdonald’s Daily Bulletin which analyses the recent Bank of England interest rate cut and US inflation data release. Received today – 19/12/2025
What has happened
The divergence of core central bank monetary policy has come to the fore in the last few days. Wednesday saw the US Federal Reserve ease policy, and with a softer inflation data release yesterday, expectations have increased that there is more to come. The UK eased rates by 25bp yesterday but cautioned about the size and pace of any further easing. The European Central Bank kept policy on hold, as expected, and market pricing is that their next move may be higher. Then, in the overnight session the Japanese Central Bank increased interest rates by 25by taking them to 75bp – a 30 year high. Commentary from Japanese officials has alluded to further tightening so JGB 10 year yields have hit 2%, their highest since 1999.
US Inflation data
The US Consumer Price data has been viewed as soft enough to make Fed rate cuts more likely next year. Headline CPI was down to +2.7% year-on-year (vs. +3.1% expected), whilst core CPI was at +2.6% (vs. +3.0% expected). This helped Treasuries to rally across the curve, with the 2yr yield (-2.3bps) down to 3.46%, whilst the 10yr yield (-3.1bps) fell to 4.12%. Clearly this was also a factor in pushing the equity market higher too. Despite the positive reading some analysts’ comments have focused on the potential irregularities in the data post the Federal Government shutdown – so the reaction could be deemed as quite muted given this caution. For instance, some analysts looked at the shelter numbers with serious doubt, as they saw a huge drop-off that’s more usually consistent with recessions. The 2-month annualised change for Owners’ Equivalent Rent (so accounting for the missing October report and this November print) came in at just +1.6%, the lowest since the Covid-19 pandemic.
Brooks Macdonald’s view
The US equity market will be supported by the potential for further easing of interest rate policy into 2026 but the divergence versus other economies will at some stage raise challenges. The good news is that rates are heading lower at present due to a softening of the inflation data, however there will be a time when the market challenges the driver of further easing – if it’s because of recessionary fears then that may lead to a different view. That said, with fiscal stimulus from President Trump’s Big Beautiful bill in 2026 and further deregulation coming into play we do not envisage such an outcome. Therefore, we remain cautiously optimistic on risk assets but prefer a broader based allocation.
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Alex Kitteringham
19th December 2025