Written by Shane Balkham
We had a third rate cut of the year from the Bank of England last week, bringing bank base rates down to 4%, the lowest since February 2023. It did take two rounds of votes to come to a majority though, with the initial voting result being 4-4-1, with four in favour of no change, four in favour of a ¼ percent reduction, and one in favour of a ½ percent reduction. The second vote saw a majority decision of 5-4 in favour of a ¼ percent cut.
There was devil in the detail, as the accompanying summary notes showed that the Monetary Policy Committee (MPC) members saw upside risks around medium-term inflationary pressures and reiterated that a cautious and gradual approach was still required in reducing bank base rates further. Whether this will lead to a dampening of the expectations for future rates cuts remains to be seen, although the Governor of the MPC, Andrew Bailey, confirmed the path may be longer and more drawn out than previously thought. Key to the pace of cuts will be future economic data, with growth, employment, and inflation being the most critical.
The dependence on economic data is starting to become less reliable. A lot of economic data is survey-based, and response rates have been dropping dramatically over time and worsened during the pandemic. If response rates are low, they may not be representative or wholly accurate. The rapidly changing world means that economic activity may no longer be accurately captured by traditional measures, and underfunding of statistical agencies weakens the quality of data. In the US, as part of Trump’s commitment in reducing costs within government, the measurement scope of consumer price inflation has been reduced, meaning areas of the US will no longer contribute to the data (such as Buffalo, NY). This is important, as CPI is a number that directly determines government spending and interest rate payments on some government debt. As highlighted in last week’s article, the markets reacted negatively to the very weak US employment report, which was sufficient cause for the US President to fire the head of the Bureau of Labor Statistics. The successor is expected to be announced this week, but that will not change the numbers in the data.
Also reported in last week’s update was Microsoft, which reached a $4 trillion valuation. It joined Nvidia in that top bracket, which is the largest US-listed company. Nvidia has increased its dominance at the top, becoming the largest single component in the S&P 500 index (the core equity index in the US consisting of the largest 500 companies), since the data started in 1981, at just under 8%. This level of concentration is distorting market performances, and the need for additional diversifying investments has arguably never been greater.
This has been driven by the profits from the semiconductor sector, which have increased significantly, and has not gone unnoticed by President Trump, who has struck an agreement with Nvidia and AMD to give the US government 15% of revenues from chip sales in China, in return for granting export licences for the Chinese market.
US investors who were trying to hedge the inflation impact from President Trump’s trade tariffs by buying gold must now pay tariffs as well. The US has imposed tariffs on imports of one kilogram and 100-ounce gold bars. Switzerland is the main supplier of gold bars to the US, meaning gold exports from Australia and the UK may be favoured due to having lower export tariffs.
Two extremes of investing – US technology equities and gold – both very different, but both being influenced by politics and policies, highlight the importance of having a spread of different investments over different geographies.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 11th August 2025.
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