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Reaction to Bank of England decision (05/05/22)

by Shafiq Shabir
Head of Electronic Trading, Intertrader

The cost of living crisis is causing drastic problems for the economy, and the everyday finances of millions of families. Drastic action is called for, and the Bank of England has responded by hiking interest rates for the fourth time in succession, the first time the UK has seen four consecutive rate rises. A sign of the times, but also an acknowledgement that the previous three hikes were not drastic enough action to rein in inflation. At this stage, the Bank of England appears to be more concerned about higher living costs than the slowing growth the UK is now seeing.

And the picture is somewhat bleaker than expected as April’s CPI data will surely show inflation levels not seen for decades, following the energy price cap coming into effect. With rumours of a potential double-digit inflationary peak to come, set against economic growth running out of steam, it’s hardly a surprise that Threadneedle Street found themselves backed into a corner once again.

To add to that complexity, Threadneedle Street’s decision means that the threshold it set at which it would consider commencing the sell-off of the £847 billion in government bonds it has amassed since 2008 has now been hit. Whether that leads to an active rush into quantitative tightening, or whether they will re-evaluate, will now be the question on traders’ and economists’ minds.

Published: 5 May 2022

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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