BoE, Fed, and ECB Hold Fire on Interest Rates Amid Ongoing US/Iran Tensions

The Bank of England (BoE), US Federal Reserve (Fed) and European Central Bank (ECB) made no changes to interest rates in July, although the ECB raised them by 0.25% in June. The BoE's rate decision was split 6-3 in favor of no change, with three members voting for a hike and none suggesting a cut.

BoE Governor Andrew Bailey's press conference saw market estimates of a September rate hike reduce from 50% to 30%. Inflation has come in lower than expected, and the UK economy is not running hot, but the ongoing US/Iran conflict's impact on energy prices remains a significant factor. If the conflict ends soon, hikes become less likely.

The ECB gave a similar view after holding rates in July, with President Christine Lagarde noting that the breakdown of the ceasefire between the US and Iran had led to 'serious developments' in commodity markets. The Fed also held rates steady, although the vote was not unanimous. New Fed Chair Kevin Warsh has stopped providing forward guidance on potential future interest rates.

High-risk high-yield bonds have provided the highest returns over the last 12 months, while UK government bonds have provided the lowest. The Artemis High Income fund was the best-performing Wealth Shortlist bond fund during this period, with a return of 6.19%. The Legal & General All Stocks Gilt Index fund was the worst-performing, returning 1.62%.