Evelyn Reynolds

Speaking to CNBC’s Karen Tso, IMF Managing Director Kristalina Georgieva said Europe’s economic performance was strengthening and inflation was clearly on a downward trajectory.
“We come with this relatively good news and with a warning: There is no time to waste for the euro zone to concentrate on productivity,” Georgieva said.
“Right now, Europe looks like an ideas supermarket for the United States,” she added.

IMF Managing Director Kristalina Georgieva arrives at a briefing in Washington, D.C., on Friday, April 19, 2024.
Bloomberg | Bloomberg | Getty Images

The head of the International Monetary Fund on Thursday called on Europe to achieve the full potential of its prized single market, lamenting what she described as a situation that makes the region look like “an ideas supermarket” for the U.S.
Speaking to CNBC’s Karen Tso, IMF Managing Director Kristalina Georgieva said Europe’s economic performance was strengthening and inflation was clearly on a downward trajectory.

Georgieva said that the IMF observing an uptick in consumption and expected interest rate cuts from the European Central Bank spelled out good news for investment in the euro zone. She said it would bolster the 20-member bloc’s economic performance.
“We come with this relatively good news and with a warning: There is no time to waste for the euro zone to concentrate on productivity,” Georgieva said.
“That means two things. One, to achieve the full potential of the single market. It is not there yet. We want to see more labor market flexibility in Europe, we want to see [a] deepening [of] the financial markets, integrating them [and] we want to see the banking union, the capital union in place,” she continued.
“And two, we want to see much more attention to innovation, investing in [research and development], making it possible to have business based on innovation in Europe to materialize in Europe. Right now, Europe looks like an ideas supermarket for the United States,” Georgieva said.

“A lot of what is invented here ends up being commercially viable and on scale over there and when you look at the main obstacle? 27 countries not yet integrated in a single market.”

U.S. productivity gap

The European Union’s single market seeks to guarantee the unrestricted movement of goods, capital, services and labor throughout the territory.
Established more than 30 years ago, the single market is designed to allow EU citizens to live and work across the EU and to provide consumers with a wider choice of high-quality services and products.
The IMF believes deeper single-market integration could further boost the region’s economic growth.
In May, the Washington, D.C.-based institute said in a blog post that an IMF report published in 2023 estimated that reducing remaining barriers to the single market for goods and services by 10% could raise European output by as much as 7 percentage points over the long term.
“The euro area is now focusing on critical questions for the future. Among them, number one, how to lift up productivity at par with competitors, especially with the U.S.,” Georgieva said.
The IMF chief reinforced the fund’s growth outlook for the euro zone, saying the bloc was on track to register a growth rate of 0.8% in 2024, compared with 0.4% in 2023 — and increase by 1.5% next year.
Correction: A previous version of this article misstated the month that the IMF said a 10% reduction would boost European output by up to 7 percentage points. More

The Bank of England voted to hold interest rates at its June meeting, meeting market expectations after U.K. inflation fell to the central bank’s 2% target.
Traders saw an increased likelihood it may opt for a cut in August, after it described a “finely balanced” decision that saw policymakers divided on the threat of second-round inflationary pressures.
Ruth Gregory, deputy chief U.K. economist at Capital Economics, said “several developments implied a rate cut is getting closer.”

General view of the Bank Of England building in London. 
Sopa Images | Lightrocket | Getty Images

LONDON — The Bank of England on Thursday opted to keep interest rates steady at its June meeting, but described the decision as “finely balanced” after U.K. inflation hit its 2% target.
Markets nudged bets on an August rate cut up to nearly 50-50 on what investors perceived as subtly dovish messaging.

It keeps the central bank’s key rate at a 16-year high of 5.25%, where it has been held since August 2023.
Seven members of the Monetary Policy Committee voted to hold, while two favored to cut by 25 basis points, the same as during the May meeting.
In a statement, the MPC noted inflation had reached the central bank’s target and said indicators of “short-term inflation expectations” and wage growth had eased.

It was “very difficult to gauge the evolution of labour market activity” because of uncertainty around estimates from the Office for National Statistics, the MPC added.
In a repeat of previous messaging that some analysts had thought it may drop, it again said monetary policy needs to “remain restrictive for sufficiently long to return inflation to the 2% target sustainably.”

Inflation data on Wednesday showed headline price rises cooled to 2% in May, hitting target ahead of the U.S. and the euro zone, despite the U.K. suffering a sharper spike inflation over the last two years.
However, economists say the U.K.’s continued high rates of services and core inflation suggest the potential for ongoing upward pressure.

The central bank’s decision to hold comes just two weeks out from a general election in which the state of the economy and proposals for rebooting sluggish growth have emerged as a key battleground.
Despite speculation that the politically-independent BOE might act more cautiously as a result of the upcoming vote, Governor Andrew Bailey had emphasized that it would remain focused on its own data.

‘Finely balanced’

Attention will now turn to the prospects of an August rate cut. Money market pricing indicated a nearly 50% chance of this following Thursday’s statement, higher than the previous day.
The MPC said that among the seven members who voted to hold, there was disagreement over the level of accumulated evidence that would be required to warrant a cut and that their decision was “finely balanced.”
Some believed that key indicators of inflation persistence “remained elevated,” with particular concern over second-round effects from services, strong domestic demand and wage growth. Others, however, felt hotter-than-expected services inflation in May had not significantly impacted the U.K.’s overall disinflation trajectory.
Ruth Gregory, deputy chief U.K. economist at Capital Economics, said in a note that “several developments implied a rate cut is getting closer,” including the “finely balanced” comment and the fact that the BOE’s overall tone had not become any more hawkish since May.
The chance of a summer interest rate cut is higher than the 30-40% that was previously being priced by markets, according to James Smith, developed markets economist at ING.
“I think the inflation numbers, services inflation… I think the road is still down for that, and I think they’ll [the BoE] remain reasonably confident,” Smith told CNBC’s Silvia Amaro following Thursday’s announcement.
“A bit like the [European Central Bank], I think they’ve got more confidence in their inflation forecasting ability than maybe 6-12 months ago.”
Other central banks in Europe have already begun to ease monetary policy, including the European Central Bank, Swiss National Bank and Sweden’s Riksbank, as they seek to reboot economic growth.
That’s even as the U.S. Federal Reserve, sometimes viewed as the central bank leader due to the U.S.’s outsize influence on the global economy, has left traders pondering when its first rate cut will come. Money market pricing suggests a 65% chance of a September cut, according to LSEG data.
The British pound extended losses against the U.S. dollar, trading 0.3% lower at $1.267 at 1 p.m. in London. More

The Swiss National Bank trimmed its key interest rate by 25 basis points to 1.25% in its second cut of the year.
Two thirds of economists polled by Reuters had anticipated the SNB would decide in favor of a 25-basis-point-cut to 1.25%.
The country’s inflation flatlined at 1.4% in May after a bump up in April and is expected to average the same level across full-year 2024, according to the SNB’s latest projections.

A view of the headquarters of the Swiss National Bank (SNB), before a press conference in Zurich, Switzerland, March 21, 2024. 
Denis Balibouse | Reuters

The Swiss National Bank on Thursday trimmed its key interest rate by 25 basis points to 1.25%, continuing cuts at a time when sentiment over monetary policy easing remains mixed among major economies.
Two thirds of economists polled by Reuters had anticipated the SNB would decide in favor of a 25-basis-point-cut to 1.25%.

The Swiss franc weakened in the wake of the announcement, with the Euro gaining 0.3% and the U.S. dollar up 0.5% against the Swiss currency at 8:55 a.m. London time.
Following the Thursday decision, the Swiss central bank pegged its conditional forecast for inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026. The figures assumes a SNB interest rate of 1.25% over the prediction period.
The country’s inflation flatlined at 1.4% in May after a bump up in April and is expected to average the same level across full-year 2024, according to the SNB’s latest projections.
The Swiss bank said it now anticipates economic growth of around 1% this year and around 1.5% in 2025, anticipating slight increases in unemployment and small declines in the utilization of production capacity.
“Over the medium term, economic activity should improve gradually, supported by somewhat stronger demand from abroad,” the SNB said.

Speaking to CNBC’s Silvia Amaro, SNB Chair Thomas Jordan stressed the impact that inflationary winds had on the bank’s latest decision-making.
“[We have] inflationary pressures that slightly declined, we have also [a] strong Swiss franc, and we have an increase in uncertainty globally. So, we came to the conclusion that, given those circumstances, it is best to lower rates by 25 basis points,” he said.
While underlining that the SNB’s foremost instrument is its interest rate, Jordan said that the bank is also ready to intervene into the foreign exchange market, if necessary.
“There are big swings in the exchange rate that could have an impact, or, really, big changes in [the] economic outlook of the world economy,” he noted. “The Swiss franc appreciated to some extent, vis-à-vis our last monetary meeting. The exchange rate has an influence on monetary conditions, and we take that into account.”
Jordan confirmed he will attend his last SNB monetary policy meeting in September, before leaving his post that month.

Future steps

Switzerland already has the second-lowest interest rate of the Group of Ten democracies by a wide margin, following Japan. It became the first major economy to cut interest rates back in late March and was earlier this month followed by the European Central Bank, and questions are now mounting over whether it will proceed with a third rate cut this year.
The SNB’s inflation forecast “suggests that there is still some restrictiveness to be squeezed out this year, and for me, that is a heavy signal that another rate cut is coming in September,” said Kyle Chapman, FX markets analyst at Ballinger Group. “I expect the SNB to follow up with a third cut next quarter, and there is potential for a fourth in December if there is still high conviction in the restrictive level of monetary policy.” 
He signaled that this outlook leaves the Swiss franc in a “vulnerable position.”
A Capital Economics analysis note out Thursday disagreed with the view, saying that the SNB is unlikely to proceed with further cuts this year in the current inflationary landscape.
“Looking ahead, we think that the SNB will not cut rates again this year as we are now no longer confident that underlying inflationary pressures are abating because labour compensation is growing at a strong rate and services inflation remains very sticky,” the note said.
Adrien Pichoud, chief economist at Bank Syz, also said that the SNB is “now done with the recalibration of its monetary policy and that it shouldn’t cut rates further this year.”
The U.S. Federal Reserve has yet to blink on interest rate reductions, and market participants will be following later in the Thursday session to see if the Bank of England takes the leap to trim, after U.K. inflation eased to the 2% target for the first time in nearly three years. More