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Bank of England raises rates by 75 bps

In a similar vein to the Fed, the BoE hinted that markets are probably not correct in their assessment of where rates will peak.

03 November 2022

Hot on the heels of the Federal Reserve (Fed), the Bank of England (BoE) hiked rates by a similar 75 bps to 3% again as widely predicted by markets. In a similar vein to the Fed, the BoE hinted that markets are probably not correct in their assessment of where rates will peak – however while the Fed was saying yesterday that the markets were under-pricing the terminal rate, the BoE went in an opposite direction and said markets are over-pricing the terminal rate. This is entirely down to the fact that the UK economy is in a much weaker position than the US and the BoE sees that the UK is already in a recession, which will see GDP falling for a record breaking eight quarters into the middle of 2024. With a less aggressive central bank, the release valve in sterling is where the market action is and it is trading a lot lower against the dollar, down close to 2% on the day. The BoE is stuck in a hole - currency weakness pushes up imported inflation but hiking aggressively into the teeth of a recession is never normal policy, yet it is hiking. It is difficult to see how this currency doom loop can be escaped.

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Charles Hepworth

Investment Director
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