Andy Burnham won the Makerfield by-election, and he will now almost certainly go on to enter Number 10 Downing Street. What would that mean for the UK economy and for interest rates? In this Top of Mind call, Bill Diviney takes stock of both the election and Thursday’s Bank of England meeting, with an update on our latest expectation for the economy and monetary policy. Larissa Fritz then discusses the impact on gilt markets, while Georgette Boele discusses the outlook for sterling.

In a unanimous decision, the Fed held the benchmark rate in the 3.5-3.75% range. As expected, the statement removed the reference to additional rate adjustments, paving the road for unanimity. In a first change to communication, it actually removed over half the content. Still, there were some important takeaways. Taking away any fear of shrinking the balance sheet, it added ‘the committee reaffirmed its policy of maintaining ample reserves in the banking system,’ although an implementation note on SOMA holdings casts some doubt about the pace over the coming months. The tone on recent data is slightly more dovish. It added that productivity and capital investment are strong, and it changed the wording of job gains from low to ‘kept pace with the workforce,’ which still implies low. It ends with a short and strong hawkish statement balancing out the overall narrative: ‘The Committee will deliver price stability.’ That’s clearly only half the mandate.

Markets are refocusing on rate spreads, real yields and US structural risks as oil-price concerns fade. A Warsh-led Fed could raise policy uncertainty and add to the risk premium in Treasuries. Fed/ECB divergence supports our view that EUR/USD can move towards 1.20 by year-end. US fiscal and external vulnerabilities point to further dollar weakness over the medium term.