The Bank of England rate decision sees UK avoid 75bp move seen elsewhere, with Truss energy policy expected to lessen inflationary pressures.

Markets head lower, as geopolitical and monetary policy concerns hurt sentiment

“Today has seen another bout of downside for stock markets throughout Europe and the US, with geopolitical and economic concerns providing a drag on risk assets once again. On a week dominated by central banks, it was always going to be difficult to envisage a scenario where traders emerge with a positive outlook. Volatility has come from a variety of sources, with the aftereffects of yesterday’s FOMC monetary policy meeting coming into play alongside a Russian nuclear war warning, BoJ JPY intervention, and a BoE rate decision. ”

BoE take cautious approach in battle against inflation  

“The Bank of England have taken a more cautious approach to monetary policy today, with the 50-basis point hike falling short of the 75bp move seen at the ECB and Fed. The spread of votes saw almost half of the nine members vote for either 75 or 25 basis point hikes, highlighting the significant degree of uncertainty over what needs to be done in the face of recessionary and inflationary pressures. However, the downward revision to inflation expectations (peaking at 11% rather than 13%) does highlight a feeling that Liz Truss and Kwasi Kwarteng could limit the impact of rising gas prices, with tomorrow’s mini budget providing a focal point for UK investors. Unfortunately, while an energy cap could also limit inflation, the BoE see this measure as risking higher inflation down the line as disposable income drives up consumption. Thus what can be relief for consumers now, could result in rates remaining elevated for a longer time as inflation becomes entrenched. ”

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