Closing post
Time for a recap:
Inflation may have peaked, the Bank of England believes, but this didn’t prevent the UK’s central bank raising interest rates today to the highest level since the aftermath of the financial crisis.
The BoE’s monetary policy committee voted, by 7 to 2, to lift Bank Rate to 4%, from 3.5% today, its 10th rate rise in a row.
Announcing the move, the Bank said:
Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom.
Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand.
But, Bank of England governor Andrew Bailey said it was too early to declare victory in the battle against inflation.
He told a press conference in London that:
“We’ve seen the first signs that inflation has turned the corner. But it’s too soon to declare victory just yet, inflationary pressures are still there.”
Stocks rallied in London, with the UK-focused FTSE 250 index jumping by 3.6%. The pound has weakened against the dollar, though, down 1% at $1.225.
The Bank is concerned that pay growth in the private sector, and inflation among services companies, has been higher than forecast three months ago. It wants to sqeeze these inflationary pressures out of the economy.
It also fears that UK productivity will suffer from the rise in over 50s workers who have left the labour force.
The Bank has revised its economic growth forecasts up – it now predicts the UK economy avoided recession at the end of last year, with modest growth in Q4 2022. It still expects the economy to shrink this year, but by less than before – and less than in previous recessions.
Top Bank officials told reporters in London that the hit from Brexit had arrived sooner than expected, and that interest rates could continue to rise if pay rises remained high.
The financial markets now expect just one more interest rate rise, from 4% to 4.25%, this spring.
Here’s the full story:
And analysis of the Bank’s thinking:
And an explanation of how it will affect you:
Plus here are today’s other main stories:
FTSE 250 index soars on hopes interest rates near peak
In the City, shares have ended the day higher as traders welcome signs that central banks may be slowing their interest rate increases.
The UK’s blue-chip FTSE 100 index has closed 59 points higher, or +0.76%, at 7820 points – approaching January’s four-year highs.
The smaller FTSE 250 index, which is more domestically-focused, surged by 3.6% to its highest level since last May. Cruise operator Carnival (+13.2%) and consumer publishing group Future (+13%) led the risers.
Michael Hewson, chief market analyst at CMC Markets UK, explains:
European markets have moved strongly higher after the Bank of England and European Central Bank both raised rates by 50bps which was in line with expectations, with the DAX moving to a new 11-month high, while the FTSE250 has outperformed the FTSE100.
While the tone of both press conferences would appear to suggest that both central banks have further to go in raising rates, markets appear to be taking the view that we’re near a peak as far as rates are concerned, and even if they aren’t done yet, they are close, sending bond yields falling sharply across the board.
