A total stiff? Central bankers under the microscope again

Between 2012 and the onset of the pandemic, major central banks entered a relatively sleepy phase: rates were held at historic lows and phases of quantitative easing (QE) steadily injected the system with liquidity, pushing up asset values. Pivotal weeks for central bankers were relatively rare - attempts to taper QE caused a few wobbles - but these were relatively stress-free years in Threadneedle Street.

The pandemic and subsequent surge in inflation put an end to that; pivotal weeks now seem to roll through every few months, and here we are again. During the next 48 hours, both the Federal Reserve and Bank of England will publish their first rate decisions since Donald Trump's 'Liberation Day'. Policymakers are under pressure to offer clarity to markets without veering into political territory – an almost impossible task.

A total stiff

The Federal Reserve is first up later today. Markets expect officials will hold rates steady, and futures pricing suggests first cut won't arrive until the July meeting. After that, economists surveyed by Bloomberg expect only two cuts, beginning in September.

A hold will be viewed as a political decision, at least by the White House. Fed chair Jerome Powell doesn’t want to cut rates “because he’s not a fan of mine," Trump said in an interview Sunday. "He just doesn’t like me because I think he’s a total stiff.” A press conference will follow the decision, at which Powell will face a barrage of questions as to the impact of tariffs and the Fed's independence.

Whatever happens, without a meaningful shift in the Fed's cautious language, elevated mortgage rates and weak consumer sentiment will continue to weigh heavily on housing market activity.

In March, existing homes sold at the slowest pace of any corresponding month since 2009, according to National Association of Realtors data covered by the FT. The average 30-year mortgage rate was 6.76% in the week ending May 1, according to Freddie Mac.

The rumour mill

The Bank of England faces a different set of pressures. While US economic data continues to surprise on the upside - despite occasional signs of stagflation - the onset of tariffs has jolted the UK business community. The S&P Global UK Services Purchasing Managers Index, a key measure of private sector activity, dropped at the fastest pace in two years last month, according to figures released this week.

A 'shadow' Monetary Policy Committee put together by the Times, which includes former rate setters, voted 6-3 in favour of lowering the UK’s base rate by a quarter of a percentage point to 4.25% - a move that corresponds with expectations in futures markets. Some commentators, like Bloomberg's Marcus Ashworth, reckon there's scope for a half-a-point reduction, given the likely damage caused by tariffs and the sluggish pace of cuts so far - at least relative to the European Central Bank. Commentators including Pepperstone's Michael Brown have flagged the fact that six members of the MPC are due to give speeches between now and Monday.

Still, a half-point move would be a shocking diversion from the slow and steady approach we're now used to. Morgan Stanley reckons the Bank will lower borrowing costs by 0.25 percentage points at each of its next five meetings, taking them down to 3.25% by the end of the year.

More than big deals

The South East and Greater London office occupier market has had its best start to a year since 2008. Total take-up hit 1.2 million sq ft – a 39% increase compared to Q4 2024, according to new Knight Frank figures.

There was a marked increase in larger transactions. Fourteen deals exceeded 20,000 sq ft, the most since 2023. BAE Systems' acquisition of 155,250 sq ft across two buildings at South Oak Way, Green Park, was the leading example of larger occupational footprints during the quarter.

This is about more than just big deals, however. The scale and breadth of activity was underscored by the completion of 107 leasing transactions, significantly above the five-year quarterly average of 70 and highlighting a broad-based uplift in occupier engagement across the region.

Occupiers are increasingly aware that availability of high quality office space is set to dwindle. Overall market vacancy rose marginally to 9.7%, but one-third of available space is now considered lower quality and increasingly ill-suited to modern occupier needs. Meanwhile, the development pipeline remains limited, with just over 1.8 million sq ft of speculative office space under construction with a delivery date before 2028 - close to two-thirds of this total is located in West London and Cambridge. This subdued pipeline reflects both the elevated cost environment and selective appetite for speculative development – but also amplifies the ongoing pressure on the supply of best-in-class product and opportunities ahead, the report states.

In other news...

Tom Bill weighs the impact of 'Wexit' in prime central London, and flags rising interest in corporate relocations - despite the prospect of tariffs.

Elsewhere - Office provider IWG shrugs off Trump trade war with record sales (Times).