Waiting for lightning from the Bank of England. keep delay your decision Threadneedle Street could this week begin the biggest increase in borrowing costs for at least 25 years, until after a period of national mourning for the death of the Queen.
Announce your plans a day before Quasi Quarteng’s Mini Budget on FridayDespite storm clouds gathering for the British economy, the central bank is widely expected to use rapid and forceful rate hikes to show its commitment to tackle rising borrowing costs.
City economists believe 0.5 percentage point increase In the seventh consecutive rate hike, the current level of 1.75% will be the lowest – the most aggressive tightening cycle since at least 1997 when Gordon Brown’s first act as chancellor gave the bank the freedom to determine lending costs .
However, a higher 0.75-point increase could be deployed. Threadneedle Street will not want to leave sinking in the wake of the US Federal Reserve, with the US central bank preparing to raise rates sharply on Wednesday following last week’s data. The world’s largest economy showed a very striking picture for inflation,
on this side of the pond, Inflation may fall in August From 10.1% in July, but remains close to its highest level since 1982 at 9.9% – nearly five times the bank’s 2% target rate – amid rising prices of food and other basic essentials.
official figures shown Unemployment falls to lowest level since 1974, while job vacancies remained high, giving the bank some sign of strength in the economy despite emerging recession risks. Taking into account annual wage growth before inflation – a key metric watched by the bank – rose, even workers continue to feel the pinch as inflation accelerates at a faster rate.
Financial markets are valuing a nearly 90% chance that the cost of borrowing will increase by 0.75 points, an unprecedented increase in the bank’s 25 years of independence.
“The energy shocks we are seeing are not really comparable to anything we have seen, so it makes sense for monetary policy to act in unprecedented ways,” said Modupe Edgbembo, an economist at AXA Investment Managers. ” “Given market pricing for a 75-basis-point increase, not doing so could exacerbate weakness in sterling.”
The pound plunged to its lowest depth in 40 years against the dollar over the summer, reflecting investor unease over the UK’s deteriorating economic prospects. Like other large European currencies, sterling is under pressure from a stronger dollar, as well as concerns over skyrocketing inflation amid Russia’s war in Ukraine.
However, in the ugly competition of the money-market, the UK is particularly exposed. Investors Think Liz Truss Has Raised Public Borrowings to Fund Her £150bn energy aid package Not helping matters. Nor are threats made in the conservative leadership campaign. To curb the independence of the bank,
The details of the truss support measures are expected in the mini budget the next day. Most economists expect this to help reduce the peak of inflation and reduce the severity of the impending recession by putting more money in the pockets of households.
For the bank, however, this could mean further raising interest rates to reduce the spread of inflation affecting the consumer economy. Financial markets expect the base rate to reach above 4.5 per cent by next summer.
All this creates a major confrontation between the government and the bank’s governor, Andrew Bailey, who has been in the crosshairs of the truce for some time, with a review of the central bank’s mandate expected this autumn.
Bailey is unlikely to be fired, given the panic in financial markets about the truss interfering with the bank’s governance at a time of rising public borrowing. But just as the truss is pushing to prop up the economy at all costs, braking with higher interest rates, there is a bigger fight. bank of england Everything but a guarantee.