Bank of England Interest rate increase - reaction

Sept. 22, 2022

Taken from an article published in the Evening Standard, on the 23rd September 2022, here: FTSE 100 Live: Interest rates up by 0.50% to 2.25% as Bank of England steps up inflation fight | Evening Standard

Bank of England 0.50% interest rate hike: 'more prudent' than expected, but still 'sharp', says City experts

While financial markets were expecting a bigger rate rise from the Bank of England, there is still concern among some City experts that the fight against inflation may end up having too much of an impact on the UK's already-stuttering economic growth. 

The BoE's 0.50% move took base rates to 2.25%, but it was seen as less likely than the 0.75% hike policymakers rejected. According to Refinitiv data, the market put the chance of the smaller move at 18% and those of the bigger rise at 82%.

The City's outlook over monetary policy at Threadneedle Street is clouded by what experts see as a slow start to the fight against inflation at the BoE, which also faces an economy, it said today, it believes is already in a technical recession. 

AJ Bell's investment director, Russ Mould, said "Governor Andrew Bailey and his colleagues made a total mess of it by arguing inflation would prove transitory and insisting policy was 'data dependent'. 

"That leaves them catching up and investors in shares and bonds and traders in currencies could be forgiven for thinking that the Old Lady of Threadneedle Street may now overcompensate and tighten policy too much at a time when the economic outlook is already fragile."

Roger Clarke, CEO of IPSX, the real estate stock exchange, called the 0.50% rise "sharp", and that its "knock-on effects" would "further dampen business sentiment as the economy hurtles toward a recession that threatens to mute investment activity."

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said the hike started an "economic tug of war between the Bank of England and Liz Truss' government," adding:

"This is a more prudent pull on the monetary policy rope that had been widely expected. Even so, as it's the seventh rise in quick succession, it still shows determination by the Bank to pull inflation down from stubbornly dangerous levels in terms of financial stability."

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