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."