MARKET REVIEW
European Central Bank (ECB): There was no ECB meeting in May, but the central bank is now widely expected to raise interest rates by 25 basis points in June. Piero Cipollone, a member of the ECB Executive Board, commented that the likelihood of a further rate hike had increased, reflecting persistent uncertainty around the inflation outlook driven by the Middle East conflict. Isabel Schnabel, another board member, argued that a June rate hike was “needed”, even if a peace deal is reached in Iran, warning that the persistence of the ongoing energy shock means “looking through is no longer an option”. Meanwhile, Eurostat reported that the annual Harmonised Index of Consumer Prices (HICP) inflation rate rose to 3.0% in April, up from 2.6% in March and slightly above expectations. GDP data confirmed the 0.1% quarter-on-quarter expansion in the eurozone in the first quarter of 2026. The ZEW Economic Sentiment Indicator recovered well in May, rising to -9.1 from April’s -20.4. Likewise, consumer confidence recovered somewhat, rising to -19 in May, up from April’s over three-year low of -20.6.
Swiss National Bank (SNB): There was no SNB policy meeting in May. Incoming data pointed to further strengthening in activity alongside still subdued inflationary dynamics. Manufacturing momentum improved notably, with the procure.ch–UBS Manufacturing PMI rising to 57.3 in May from 54.5 in April, the strongest reading since mid-2022, signalling a broad-based expansion in output and new orders. The KOF Economic Barometer increased modestly again in May, extending April’s recovery, but continued to sit below its long-term average, suggesting that growth expectations remain somewhat fragile despite improved near-term indicators. Inflation strengthened, with headline CPI rising to 0.6% year-on-year in April from 0.3% in March, while core inflation eased to 0.3%, underscoring limited underlying price pressures.
UK Bank of England (BoE): There was no BoE meeting in May. However, Governor Andrew Bailey commented during the month that allowing inflation to run above the 2% target was justified, given the uncertainty around the impact of the Iran war on the economy and the weak pace of growth. However, he noted that “tolerance would weaken if signs of second-round effects begin to emerge”. Elsewhere, annual headline CPI inflation rate eased to 2.8% in April, beneath expectations of 3.0% and down from 3.3%. Likewise, the core rate, which removes the effect of more volatile items such as food and energy, also declined, coming in below expectations at 2.5%. The Office for National Statistics reported unemployment rose to 5.0% in the three months to March, up from February’s 4.9%. The data represented the first reading since the US-Iran conflict began. Meanwhile, average earnings growth rose to 4.1% year-on-year (including bonuses) for the three months to March 2026, up from the prior period’s 3.9% and above expectations of 3.8%. The GfK Consumer Confidence Barometer rose to -23 in May, up from -25 recorded in April.
US Federal Reserve (Fed): Following the Federal Open Market Committee (FOMC) decision in late April to keep US interest rates at 3.5%-3.75%, minutes from the meeting released later in May indicated growing concern about the inflation outlook. Although some participants still saw scope for easing if inflation declines or the labour market weakens, the overall tone suggested that risks remain tilted towards a higher-for-longer policy backdrop. Meanwhile, the Institute of Supply Management (ISM) Manufacturing PMI remained unchanged in April at 52.7, slightly below expectations of 53.0. Likewise, the ISM Services PMI fell to slightly to 53.6, down from 54.0 in March and broadly in line with forecasts. Elsewhere, annual CPI inflation rose to 3.8% in April, up from March’s 3.3% and slightly ahead of market forecasts of 3.7%. Likewise, data from to the Bureau of Economic Analysis (BEA), the annual Personal Consumption Expenditures (PCE) inflation rate, the Fed’s preferred measure of inflation, rose to 3.8% in April. The BEA downwardly revised Q1 GDP growth to 1.6% on an annualised basis, down from the advance estimate and expectations of 2%. The revision reflected lower investment and consumer spending. In employment data, non-farm payrolls indicated that the US economy added 115,000 jobs in April, well above consensus expectations, while March’s gain was revised higher, to a gain of 185,000. Consumer confidence declined during the month, with the University of Michigan Consumer Sentiment Index falling to 44.8, down from 49.8 in April.
Figure 1: Central bank rates history and future market pricing1
Key interest rates and global data1
