Closing summary
The Bank of England has been accused of acting like a timid cat after raising interest rates by a quarter of a point, despite the UK’s intensifying cost of living crisis.
The UK’s central bank lifted its benchmark rate to 1.25% today, from 1%, the fifth rise in as many meetings. Three policymakers wanted a bigger rise, to 1.5%, but were outvoted.
The Bank also predicted that inflation will soar to 11% this autumn when the cap on energy bills is next lifted, and that UK GDP will shrink by 0.3% this quarter.
It pledged to take further action if needed:
“The committee would be particularly alert to indications of more persistent inflationary pressures, and would, if necessary, act forcefully in response.”
Some economists predicted the Bank might lift interest rates more aggressively at its next meeting in August, to 1.75%.
And with the US Federal Reserve going big with a 75bp hike last night, and the Swiss central bank shocking markets with an unexpected rise, central bankers are intensifying their battle against inflation.
Andy Burgess, Fixed Income Investment Specialist at Insight Investment, explains:
More important than the 25bp rate hike was the BOE finally admitting that they may have to take more “forceful” measures and raise rates faster if they see inflation as more persistent.
They are trying to balance the significant near-term inflationary pressures against signs that the economy is slowing which should reduce inflationary pressure in the medium-term; all set against a backdrop of more aggressive responses by their peers such as the US Federal Reserve.
Here’s the story, and analysis:
Today’s rise, the fifth in a row, will push up the cost of getting a new mortgage, and also hit borrowers with variable rate loans.
Stock markets have slumped again, with Britain’s FTSE 100 tumbling 3% to a three-month low.
It’s down 217 points in late trading at 7055 points, with retailers, tech stocks, hospitality firms, traverl companies and miners among the top fallers in London.
The pound had a volatile day, but is currently up almost a cent against the US dollar at $1.227.
Elsewhere today.....
Families have been warned that food price inflation could hit 15% this summer – the highest level in more than 20 years.
With pressures mounting, the UK’s financial watchdog has warned UK lenders to do more to support struggling borrowers hit by the cost of living crisis.
That could include offering payment holidays and waiving interest for some of the most at-risk customers.
The British Gas owner, Centrica, has signed a major supply deal with the Norwegian state oil company, Equinor, as ministers scramble to secure domestic energy supplies.
Online fashion retailer Asos has issued a profits warning, after a surge in cash-strapped customers returninge items to the online fashion retailer.
But the Queen’s property company is insulated from the squeeze, with the value of its rights to exploit the seabed around Britain’s coastline swelling to £5bn after a record-breaking auction of plots for offshore windfarms.
The West End landlords Shaftesbury and Capital & Counties have agreed to merge, creating a property company with a combined portfolio value of £5bn in the heart of London.
And transport secretary Grant Shapps has told rail staff not to “risk striking yourself out of a job”, before industrial action that will close much of the railway next week.
Nils Pratley: Bank’s rate rise is a couple of sparklers compared with Fed’s fireworks
Five interest rate rises in a row from the Bank of England would once have been regarded as strong and determined action to tame inflation, our financial editor Nils Pratley writes:
The problem for Threadneedle Street is that the US Federal Reserve rather redefined the definition of decisive measures on Wednesday when it hiked by 0.75 percentage points in one go.
Versus that full-on display of fireworks, the Bank’s quarter-point move to 1.25% felt like a case of turning up with a couple of sparklers. It was a bare-minimum move when official forecasts now see inflation at 11% in October when consumers’ energy bills go up again. The inflation forecasts get bigger every time the Bank opens its mouth these days. As recently as February – just before Russia’s invasion of Ukraine – the peak was projected to be 7.25%.
The bind, of course, is the weakness of the economy. The minutes of the monetary policy committee’s meeting showed that a fall in GDP in the second-quarter of this year is now almost nailed-on – the new forecast is for a fall of 0.3%. The US, by contrast, is still looking at growth.
So there is still a plausible argument that slowing demand in the UK will open up a margin of “slack” in the economy, which would do some of the inflation-fighting work. That, at least, is the case for sticking to baby steps on interest rate increases....
Here’s the full analysis:
