After central banks kept interest rates unchanged this week, wealth managers discuss the impact on asset allocation and the timing of potential rate cuts.

Central banks – the Bank of England (BoE), the European Central Bank (ECB), Bank of Japan (BoJ) and the US Federal Reserve – all kept interest rates unchanged this week, as expected, highlighting the severity of the Middle East conflict which has caused oil prices to surge.

The decisions signal that uncertainty and inflation risks have risen, mainly as a result of the oil-driven energy shock.

Although domestic conditions have improved in the UK, external factors played a key role in the BoE’s decision, and the Monetary Policy Committee (MPC) unanimously voted to keep the rate unchanged at 3.75 per cent. It was mainly based on the uncertainty over the length of the conflict and the potential impact this could have on energy prices. The ECB’s decision to keep rates at 2 per cent also came as no surprise, with a hold having been long expected.

The Fed also left rates unchanged at 3.50 to 3.75 per cent on Wednesday, with Chair Jerome Powell stressing that officials would need to see more progress in moderating inflation in the US to ease further. “If we don’t see that progress, then we won’t see the rate cut,” he said. The US central bank also raised its inflation and GDP growth projections for 2026. 

Here are some reactions from investment managers to the decisions.

Bank of England

Joaquin Thul, economist at EFG Asset Management, the asset management arm of EFG International
“Going forward, it would be expected that the MPC will remain on hold in the coming meetings in the absence of any solution to the conflict in the Middle East, or at least a solution that would allow the reopening of the Strait of Hormuz, that would ease pressure on energy prices. Until then, the developments on UK domestic data will continue to trend lower but rates will be expected to come down at an even slower pace than previously anticipated.”

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
Despite weak domestic growth, the dominant concern is that inflation expectations could de-anchor. Market pricing has moved decisively, with investors now assuming the possibility of rate hikes rather than further cuts. We think the bar for a hike remains high, unless inflation expectations were to trend significantly higher from here. The dataflow in the next few weeks will be critical, as the energy situation remains fluid and highly uncertain. Wage growth is easing, but not enough to offset the renewed inflation pressure coming through from global developments. The next policy meeting could take place against a significantly changed backdrop if energy markets continue to be disrupted.

“Given inflation concerns, and some degree of political uncertainty. we recently sold some gilts. We reallocated to emerging market bonds to gain exposure to selected oil exporters, keeping some extra cash to use if new opportunities arise. We bought gold at the onset of the Iran conflict, funded by selling US Treasuries, where inflation risks and fiscal spending ahead of the US midterms could become a concern for markets.”

Luke Bartholomew, deputy chief economist at Aberdeen
“What is striking is that all policymakers voted to keep policy on hold, which shows that even the more dovish members of the committee want to see how this conflict plays out before cutting again. With today’s labor market data showing that wage growth is continuing to moderate, there is certainly a strong case for bringing rates down eventually. But with the inflation outlook now looking more challenging, the Bank will be focused on keeping inflation expectations pinned down. So while the hurdle to a return to rate hikes is very high, the economy could be facing a long wait until the next cut.”

Chris Beauchamp, chief market analyst at IG
"If anyone was in doubt as to how the BoE would respond to the current situation, then today is clear. A dramatic shift has taken place, and hikes are back on the table as the bank scrambles to respond to the likelihood of another inflation surge. This was all unthinkable just weeks ago, but is a sign of how the war with Iran has upended everyone's forecasts."

David Roberts, head of fixed income at Nedgroup Investments
“I'm surprised at the tone of the MPC comments – an incredibly "hawkish" hold. The market moved to price three rate hikes, which seems too much. If the intention of the Bank was to scare markets into raising the cost of finance for UK plc, they could hardly have done a better job. It's yet another reminder of the dangers posed to those focusing solely on the domestic market as gilt yields surge both in outright terms and relative to Germany, Japan and the US.”

European Central Bank (ECB)

Felix Feather, economist at Aberdeen Investments
“We see the ECB hiking at least once by the end of this year. The pace and timing of these hikes will hinge on the duration of the conflict in the Middle East.”

Irene Lauro, senior economist – Europe and climate at Schroders
"Higher energy costs inevitably push headline inflation higher, but the policy dilemma hinges on second round effects – whether wage and core inflation dynamics reaccelerate or growth softens enough to keep medium-term inflation anchored. Negative risks to growth have intensified as disruption to Qatari liquified natural gas leaves the eurozone exposed at a seasonal low in gas storage. A looming scramble for gas, with Europe and Asia competing head-to-head, risks keeping energy prices elevated for longer and further undermining growth. Markets are currently assuming a temporary shock. If that proves correct, the ECB can look through short-lived volatility in energy inflation. But that is a big assumption, and the ECB is likely to remain firmly data dependent to preserve flexibility in such an uncertain environment.”

Nicolas Forest, CIO at Candriam
"The ECB is in an increasingly uncomfortable position. Escalating tensions in the Middle East, coupled with disruptions to energy supply, are once again clouding the inflation outlook in the euro area. After several meetings marked by a clear disinflationary trend, the recent rebound in oil prices and persistent geopolitical risks now pose tangible upside risks to inflation for the ECB. These pressures are likely to materialize not only through direct energy costs, but also via second-round effects on wages and services. At the same time, eurozone growth remains subdued, leaving the economy vulnerable to further shocks. In response, the ECB has revised its inflation forecast to 2.6 per cent for this year – up from 1.9 per cent – and now expects inflation to remain above 2 per cent through 2028. At the same time, growth has been revised lower to 0.9 per cent this year (from 1.2 per cent). Absent a sustained rise in oil prices above $100 per barrel and a prolonged blockage in the Strait of Hormuz, the ECB is likely to remain on hold through year-end. In this context, a bund yield approaching 3 per cent may increase the relative attractiveness of longer-duration assets."

US Federal Reserve 

Mark Haefele, chief investment officer at UBS Global Wealth Management
“Despite near-term risks that reduce the likelihood for imminent easing, we believe that the medium-term policy trajectory still points toward lower rates. We continue to recommend maintaining a diversified portfolio that includes allocations to quality bonds and gold against the current backdrop. The median dot in the Fed's assessment of the rate path continues to imply two rate cuts over the next two years, suggesting that policymakers are willing to look beyond near-term oil price effects.”

Daniel Siluk, head of global short duration and liquidity, and portfolio manager at Janus Henderson Investors
“The Fed delivered a fully-expected hold, but the tone came through more cautiously balanced than hawkish. The statement explicitly notes that job gains remain low, inflation is “somewhat elevated,” and uncertainty from Middle East developments clouds the outlook, marking a clearer recognition of two-sided risks. Overall: The Fed affirmed patience, acknowledged geopolitical uncertainty, and resisted a more hawkish pivot even with firmer inflation projections, likely a relief for markets already tightened by recent volatility.”

Max Stainton, senior global macro strategist at Fidelity International
“Looking ahead to the rates outlook for the rest of the year, this will unsurprisingly be dominated by developments in the Middle East. In our base case scenario of oil prices remaining elevated but range bound at $90 to $110 a barrel, we would expect the Federal Reserve to remain on hold for longer, with the bar for near-term easing rising. If our base case scenario plays out, then we would still expect one to two cuts from the Fed this year. But we would note that events are shifting rapidly in the Middle East with signs of escalation appearing after Iranian energy infrastructure was hit today, which, if this persists, almost certainly removes the chances of cuts this year.”