Friday Forward Guidance ...
This is our Friday Forward Guidance for Friday 8th May 2026. Every week we update our scenario forecasts for base rates in the U.S., UK and Europe over a three year period. We also include our expectations for inflation, as an input to the central bank reaction function, in the Saturday Economist updates. All bets are off as the Iranian oil crisis puts prospects of rate cuts in the U.S. Europe and the U.K. on hold. At its meeting ending on 29 April 2026, the Monetary Policy Committee (MPC) voted by a majority of 8–1 to maintain Bank Rate at 3.75%. One member voted to increase Bank Rate by 0.25 percentage points, to 4%.
The conflict in the Middle East means that prospects for global energy prices are highly uncertain. Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.
In the U.S, in the latest move, at its meeting ending on 29th April 2026, the [FOMC] Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In Europe, at its meeting on 30th April, The Governing Council today decided to keep the three key ECB interest rates unchanged. While the incoming information has been broadly consistent with the Governing Council’s previous assessment of the inflation outlook, the upside risks to inflation and the downside risks to growth have intensified. The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at the 2% target in the medium term. The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility remain unchanged at 2.00%, 2.15% and 2.40% respectively.
The conflict in the Middle East means that prospects for global energy prices are highly uncertain. Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.
In the U.S, in the latest move, at its meeting ending on 29th April 2026, the [FOMC] Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In Europe, at its meeting on 30th April, The Governing Council today decided to keep the three key ECB interest rates unchanged. While the incoming information has been broadly consistent with the Governing Council’s previous assessment of the inflation outlook, the upside risks to inflation and the downside risks to growth have intensified. The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at the 2% target in the medium term. The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility remain unchanged at 2.00%, 2.15% and 2.40% respectively.
Fed Funds Rate ...
In the U.S, in the latest move, at its meeting ending on 19th March 2026, the [FOMC] Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate.
Inflation CPI jumped to 3.3% in March from 2.4% in February. The underlying rate (excluding food and energy costs) was 2.6%. Energy prices increased by 12.5% with a 44% leap in fuel oil. Latest Producer price data suggests a rise to 3.4% year on year in February up from 2.9% in January.
"Prior to the U.S. strikes in the Middle East, futures were still pricing two cuts for the full year, but that was always questionable. We model no further cuts in the current year at this time.
In the U.S, in the latest move, at its meeting ending on 19th March 2026, the [FOMC] Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate.
Inflation CPI jumped to 3.3% in March from 2.4% in February. The underlying rate (excluding food and energy costs) was 2.6%. Energy prices increased by 12.5% with a 44% leap in fuel oil. Latest Producer price data suggests a rise to 3.4% year on year in February up from 2.9% in January.
"Prior to the U.S. strikes in the Middle East, futures were still pricing two cuts for the full year, but that was always questionable. We model no further cuts in the current year at this time.
Bank Base Rate ...
At its meeting ending on 29 April 2026, the Monetary Policy Committee (MPC) voted by a majority of 8–1 to maintain Bank Rate at 3.75%. One member voted to increase Bank Rate by 0.25 percentage points, to 4%.
The conflict in the Middle East means that prospects for global energy prices are highly uncertain. Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.
Inflation CPI basis increased to 3.3% in March from 3.00% in February . CPI(g) goods inflation moved to 2.1% from 1.6% prior month. CPI(s.) Service Sector inflation increased to 4.5% from 4.3%. Core inflation slowed to 3.1% from 3.2%.
The near-term outlook for CPI inflation has risen relative to the February Report projection. Increased energy prices will impact near-term inflation directly via increased household fuel and utilities prices, and indirectly as business’ energy-related costs would also be affected. Preliminary Bank staff estimates, based on energy price developments in the run-up to this meeting, indicated that CPI inflation was now likely to be between 3 and 3½% over the next couple of quarters. In the February Report, CPI had previously been expected to fall back to around the 2% target from April, partly owing to measures in Budget 2025.
Members agreed that developments over the next six weeks could shed light on the likely scale and duration of the conflict, as well as providing some early evidence on the likely propagation of the shock. There was a range of possibilities for how monetary policy might need to respond to different developments and risks. A larger or more protracted shock, which risked greater second-round effects in wage and price setting, would require a more restrictive policy stance. Conversely, policy would need to be less restrictive if the shock was very short-lived, or if there were to be a larger opening up of slack in the economy that was expected to reduce medium-term inflationary pressures.
We no forecast no changes in base rate for the current year and into 2027.
* Long Term Note : In the UK, prior to the Great Financial Crash [2000 - 2008] the average inflation rate was 2.0%, the average UK bank rate was 4.50%. Ten year gilt yields averaged 4.50%, real GDP growth averaged 2.5%, earnings averaged 3.5%, the unemployment rate averaged 5%.
Euro Base Rate ...
In Europe, at its meeting on 30th April, The Governing Council today decided to keep the three key ECB interest rates unchanged. While the incoming information has been broadly consistent with the Governing Council’s previous assessment of the inflation outlook, the upside risks to inflation and the downside risks to growth have intensified. The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at the 2% target in the medium term. The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility remain unchanged at 2.00%, 2.15% and 2.40% respectively.
The war in the Middle East has led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment. The implications of the war for medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects. The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy.
Official figures showed that inflation in the Euro Area increased to 3.0 per cent in April from 2.6% in March. In The wider European Union inflation increased to 2.8% in March from 2.1% in Feebruary. ]
The new ECB staff projections exceptionally incorporate information up to 11 March, a later cut-off date than usual. In the baseline, headline inflation is seen to average 2.6% in 2026, 2.0% in 2027 and 2.1% in 2028. Inflation has been revised up compared with the December projections, especially for 2026. This is because energy prices will be higher owing to the war in the Middle East.
Staff expect economic growth to average 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028. This implies a downward revision, especially for 2026, reflecting the global effects of the war on commodity markets, real incomes and confidence.
We anticipate no further changes in base rates for the remainder of the year and into 2027.
In Europe, at its meeting on 30th April, The Governing Council today decided to keep the three key ECB interest rates unchanged. While the incoming information has been broadly consistent with the Governing Council’s previous assessment of the inflation outlook, the upside risks to inflation and the downside risks to growth have intensified. The Governing Council is committed to setting monetary policy to ensure that inflation stabilises at the 2% target in the medium term. The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility remain unchanged at 2.00%, 2.15% and 2.40% respectively.
The war in the Middle East has led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment. The implications of the war for medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects. The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy.
Official figures showed that inflation in the Euro Area increased to 3.0 per cent in April from 2.6% in March. In The wider European Union inflation increased to 2.8% in March from 2.1% in Feebruary. ]
The new ECB staff projections exceptionally incorporate information up to 11 March, a later cut-off date than usual. In the baseline, headline inflation is seen to average 2.6% in 2026, 2.0% in 2027 and 2.1% in 2028. Inflation has been revised up compared with the December projections, especially for 2026. This is because energy prices will be higher owing to the war in the Middle East.
Staff expect economic growth to average 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028. This implies a downward revision, especially for 2026, reflecting the global effects of the war on commodity markets, real incomes and confidence.
We anticipate no further changes in base rates for the remainder of the year and into 2027.
Scenario Comparisons ...
This is the table of scenario comparisons. We would expect UK rates to lag not lead the US pattern. EU rates would follow the US/UK lead. Inflation may subside sooner than expected. Central banks may worry about the shock to growth. This is a scenario not the plan.
We model the long run UK rate at 4.0% - 4.5%. In the UK, prior to the Great Financial Crash [2000 - 2008] the average inflation rate was 2.0%, the average UK bank rate was 4.50%. Ten year bond yields averaged 4.50%.
This is the table of scenario comparisons. We would expect UK rates to lag not lead the US pattern. EU rates would follow the US/UK lead. Inflation may subside sooner than expected. Central banks may worry about the shock to growth. This is a scenario not the plan.
We model the long run UK rate at 4.0% - 4.5%. In the UK, prior to the Great Financial Crash [2000 - 2008] the average inflation rate was 2.0%, the average UK bank rate was 4.50%. Ten year bond yields averaged 4.50%.
Executive Summary: 2026 Central Bank Outlook (Pre War Outlook)
The 2026 monetary policy landscape is defined by a delicate "normalization" phase. Following the aggressive tightening of previous years, the Federal Reserve (Fed), Bank of England (BoE), and European Central Bank (ECB) are navigating a "higher-for-longer" tail-end while keeping a keen eye on labor market resilience and lingering service-sector inflation. Investors should prepare for heightened volatility around the March and September clusters, which historically serve as pivotal points for shift in policy guidance.
Federal Open Market Committee (FOMC)
The Fed maintains its eight-meeting cadence. Markets are currently dissecting the January 28 hold decision (3.50%–3.75%), with significant focus shifting to the March meeting for a potential "Spring Pivot."
Meeting Date (2026) SignificanceJan 27–28 [Completed] Rates held; leadership transition in focus.
Mar 17–18* Includes Summary of Economic Projections (SEP).
Apr 28–29 Policy recalibration based on Q1 data.
Jun 16–17* Mid-year SEP and "Dot Plot" refresh.
Jul 28–29 Summer liquidity/volatility assessment.
Sep 15–16* Critical Q3 SEP; pre-election window (if applicable).
Oct 27–28 Tactical adjustment meeting.
Dec 8–9* Year-end SEP; 2027 forward guidance.
*Includes a Summary of Economic Projections.
Bank of England: Monetary Policy Committee (MPC)
The BoE entered 2026 with a split vote in February, signaling a "finely balanced" committee. With inflation projected to hit the 2% target by April 2026, the April 30 and July 30 meetings are high-conviction dates for potential rate relief.
Meeting Date (2026)Deliverables
Feb 5 Rate held at 3.75%.
Mar 19 Minutes & Policy Summary.
Apr 30 Monetary Policy Report (MPR).
Jun 18 Minutes & Policy Summary.
July 30 Monetary Policy Report (MPR).
Sep 17 Minutes & Policy Summary.
Nov 5 Monetary Policy Report (MPR).
Dec 17 Year-end Summary.
European Central Bank (ECB)
The ECB’s Governing Council continues its 6-week cycle. Christine Lagarde’s team is balancing a stagnant Eurozone growth outlook against sticky wage growth. Note that the September meeting will be hosted by the Deutsche Bundesbank rather than the usual Frankfurt Eurotower.
Meeting Date (2026)Location / Type
Feb 4–5 [Completed] Frankfurt.
Mar 18–19 Frankfurt (Monetary Policy).
Apr 29–30 Frankfurt (Monetary Policy).
Jun 10–11 Frankfurt (Monetary Policy).
Jul 22–23 Frankfurt (Monetary Policy).
Sep 9–10 Hosted by Deutsche Bundesbank.
Oct 28–29 Frankfurt (Monetary Policy).
Dec 16–17 Frankfurt (Monetary Policy).
The 2026 monetary policy landscape is defined by a delicate "normalization" phase. Following the aggressive tightening of previous years, the Federal Reserve (Fed), Bank of England (BoE), and European Central Bank (ECB) are navigating a "higher-for-longer" tail-end while keeping a keen eye on labor market resilience and lingering service-sector inflation. Investors should prepare for heightened volatility around the March and September clusters, which historically serve as pivotal points for shift in policy guidance.
Federal Open Market Committee (FOMC)
The Fed maintains its eight-meeting cadence. Markets are currently dissecting the January 28 hold decision (3.50%–3.75%), with significant focus shifting to the March meeting for a potential "Spring Pivot."
Meeting Date (2026) SignificanceJan 27–28 [Completed] Rates held; leadership transition in focus.
Mar 17–18* Includes Summary of Economic Projections (SEP).
Apr 28–29 Policy recalibration based on Q1 data.
Jun 16–17* Mid-year SEP and "Dot Plot" refresh.
Jul 28–29 Summer liquidity/volatility assessment.
Sep 15–16* Critical Q3 SEP; pre-election window (if applicable).
Oct 27–28 Tactical adjustment meeting.
Dec 8–9* Year-end SEP; 2027 forward guidance.
*Includes a Summary of Economic Projections.
Bank of England: Monetary Policy Committee (MPC)
The BoE entered 2026 with a split vote in February, signaling a "finely balanced" committee. With inflation projected to hit the 2% target by April 2026, the April 30 and July 30 meetings are high-conviction dates for potential rate relief.
Meeting Date (2026)Deliverables
Feb 5 Rate held at 3.75%.
Mar 19 Minutes & Policy Summary.
Apr 30 Monetary Policy Report (MPR).
Jun 18 Minutes & Policy Summary.
July 30 Monetary Policy Report (MPR).
Sep 17 Minutes & Policy Summary.
Nov 5 Monetary Policy Report (MPR).
Dec 17 Year-end Summary.
European Central Bank (ECB)
The ECB’s Governing Council continues its 6-week cycle. Christine Lagarde’s team is balancing a stagnant Eurozone growth outlook against sticky wage growth. Note that the September meeting will be hosted by the Deutsche Bundesbank rather than the usual Frankfurt Eurotower.
Meeting Date (2026)Location / Type
Feb 4–5 [Completed] Frankfurt.
Mar 18–19 Frankfurt (Monetary Policy).
Apr 29–30 Frankfurt (Monetary Policy).
Jun 10–11 Frankfurt (Monetary Policy).
Jul 22–23 Frankfurt (Monetary Policy).
Sep 9–10 Hosted by Deutsche Bundesbank.
Oct 28–29 Frankfurt (Monetary Policy).
Dec 16–17 Frankfurt (Monetary Policy).
That's all for this week ... "to understand the markets you have to understand the economics" and we do ...
© 2024 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
© 2024 John Ashcroft, Economics, Strategy and Financial Markets, experience worth sharing.
