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Facts and Figures after the Bank of England’s 0.5% interest rate rise

Below are the Bank of England's updated economic forecasts:

  • Inflation in one year's time at 9.53% (May forecast: 6.65%).

  • Inflation in two years' time at 2.00% (May forecast: 2.14%).

  • Inflation in three years' time at 0.76% (May forecast: 1.30%).

  • Market rates imply more BOE tightening than May, show bank rate at 2.4% in Q4 2022, 2.9% in Q4 2023, 2.4% in Q4 2024 (May: 1.9% in Q4 2022, 2.6% in Q4 2023, 2.2% in Q4 2024)."

  • GDP fell 0.2% (QQ) in Q2 2022 (June forecast: -0.3% QQ), sees +0.4% QQ in Q3 2022."

  • GDP in 2022 +3.5% (May forecast: +3.75%), 2023 -1.5% (May: -0.25%), 2024 -0.25% (May: +0.25%).

  • Unemployment rate 3.67 in Q4 2022 (May forecast: 3.61%); Q4 2023 4.68% (May: 4.26%); Q4 2024 5.68% (May: 5.05%).

  • Real post-tax household disposable income in 2022 -1.5% YY (May: -1.75%), 2023 -2.25% (May: +1%), 2024 +0.75% (May: +2.5%)."

  • Wage growth +5.25% YY in Q4 2022 (May forecast: +5.75%), Q4 2023 +5.25% (May: +4.75%), Q4 2024 +2.75% (May: +2.75%)

The MPC voted to raise by 0.5% as expected. Initially, GBP fell because of the make-up of the vote.

Everyone voted for a 50bp hike EXCEPT MPC member Silvana Tenreyo, who voted for an increase of just 25bp. The Press Conference then stabilised GBP at lower levels GBP/USD at 1.2100 and GBP/EUR at 1.1875

New Bank of England economic forecasts show the expectation of the UK entering a recession before the end of the year. This also weighed on the currency, despite higher rates which should boost a currency.

Mohamed El-Erian said the Bank of England continues to give “ .. the most direct and honest commentary of any major central bank, did not mince words in detailing forecasts that see inflation going above 13% and recession persisting through 2023 ...”.

Governor Bailey quotes:

  • "50 bp rate rise today does not mean we are now moving to a pre-determined path of raising rates by 50 bp per meeting."

  • "All options are on the table for the September meeting and beyond."

  • "Rise in energy prices has exacerbated fall in real incomes, led to another big deterioration in outlook."

  • "UK is forecast to enter recession later this year."

Kevin Tullett
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