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Bank of England (BoE) Report — Bank Rate Increased To 1.75%

Bank of England (BoE) Report — Bank Rate Increased To 1.75%

4 August 2022

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The Bank of England reported a key rate hike of 0.50%, to 1.75%. This is the largest key rate hike in the U.K. in 27 years, indicating that the country is plunging into economic recession. The central bank said Britain will tumble into recession in the fourth quarter of the year, with the downturn lasting through next year. GDP is forecast to drop 2.1pc – that’s the biggest contraction since the global financial crisis more than a decade ago.

Monetary Policy Summary, August 2022

The Bank also revised its forecasts for inflation to peak above 13pc later this year, with prices remaining elevated throughout 2023. That’s an increase from previous forecasts of 11pc. The moves come as the government grapples with the highest inflation in 40 years – with soaring energy bills sparked by Russia’s war in Ukraine compounding the problem – as well as a looming economic slowdown. At the same time, representatives of the Bank of England said that the interest rate may be raised to 2% or 2.25% at the next meeting of the commission. Therefore, the current increase is not the last in the race to reduce inflation.

What is the market reaction to the BoE decision

The BOE policy decision was the main event of the session, and it did not really disappoint. Well, unless you’re betting on the pound. The risks coming into the meeting were skewed to the downside and with the BOE warning of the longest recession since the global financial crisis, sterling tumbled and is being pressured lower. GBP/USD was trading around 1.2175 going into the decision, but has now fallen by over 100 pips to 1.2070 on the day.
The regulator’s mention of September not being a guarantee for a 50 bps rate hike has dragged the quid lower in the past half-hour. At the same time, GDP growth in the United Kingdom is slowing.

The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe. The United Kingdom is now projected to enter recession from the fourth quarter of this year.

Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative. According to the theses from the report of the British regulator, the difficult economic period will last at least until the middle of 2023. Before that period, the interest rate could rise to 2.50-3%, which could put even more pressure on the pound sterling.

Conclusion

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Summary

The Bank of England reported a key rate hike of 0.50%, to 1.75%.
According to the theses from the report of the British regulator, the difficult economic period will last at least until the middle of 2023.
Before that period, the interest rate could rise to 2.50-3%, which could put even more pressure on the pound sterling.

IMPORTANT NOTICE: Any news, opinions, research, analyses, prices or other information contained in this article are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and therefore, it is not subject to any prohibition on dealing ahead of dissemination. Past performance is not an indication of possible future performance. Any action you take upon the information in this article is strictly at your own risk, and we will not be liable for any losses and damages in connection with the use of this article.

RISK WARNING: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. A high percentage of retail client investors lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Bank of England (BoE) Report — Bank Rate Increased To 1.75%

Monetary Policy Summary, August 2022

What is the market reaction to the BoE decision

Conclusion

Summary

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