Thursday, February 2

Bank of England delivers 8th and final rate hike of 2022


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LONDON — The Bank of England on Thursday raised interest rates by a widely expected 50 basis points to 3.50%, making this its eighth increase this year.

The BoE, which is battling double-digit inflation that has unleashed a cost-of-living crisis that is pushing the economy deeper into recession, has raised rates by a combined 325 basis points in 2022 alone to their highest since late 2008.

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UK rates began rising in December 2021, making the BoE the first of the world’s major central banks to kick off a monetary policy-tightening cycle. The pound slid, while benchmark British government bond yields declined, falling 8 basis points to 3.235%.

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MARKET REACTION:

STOCKS: London’s blue-chip FTSE 100 index briefly trimmed losses and was last down 0.5%, while the FTSE 250, a more domestic-focused index of mid-cap stocks, was down 0.4%.

FOREX: Sterling slid against the dollar, to last trade down 0.8% at $1.2328, against $1.2337 shortly before the central bank’s decision.

MONEY MARKETS: Interest rate swaps showed investors expected rates to peak just 4.45% by next August, compared with an anticipated terminal rate of 4.53% just before the decision.

COMMENTS:

MIKE COOP, CHIEF INVESTMENT OFFICER UK, MORNINGSTAR INVESTMENT MANAGEMENT, LONDON:

“The central bank ‘Super Thursday’ ends a year many will be glad to see the back of. However, with another 50-basis point rate increase from the Bank of England and inflation continuing to rise, 2023 looks set to be as rough if not rougher than 2022.”

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PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON:

“While the 50bp increase in the Bank rate was as expected, the extent of the divisions across the committee is an eyeopener. While it is normal to see policymakers disagree towards the end of a rate cycle, the split makes it more difficult to predict the extent to which interest rates will rise.

Our view is still that the Bank rate will peak at 4.0% and that cuts will arrive towards the end of 2023, but clearly the labor market data and the inflation numbers themselves have the capacity to force us alter our view at any point.” ( Reporting by London Markets Team; Editing by Alun John)



financialpost.com