The Bank of England increased rates by 75bps at their November monetary policy meeting, which was in line with market expectations, taking the Bank’s policy rate to 3.0%. It marks the eighth rate increase in as many meetings.
The monetary policy committee voted 7-1-1 in favour of an increase of 75-50-25bps respectively.
David Goebel, Associate Director of Investment Strategy at UK wealth manager Evelyn Partners, said, Markets had been pricing in continued rate hikes up to as much as 5.25% next year, but the Bank made clear in its statement today that this was not a likely path, saying that the peak in rates will be “lower than priced into financial markets.”
It forecast that following the market path would result in a long recession – two years from Q3 2022 to Q3 2024 – and reducing inflation to near-zero, far below the Bank’s 2% target.
This implies that the peak for bank rate will be below 5.0%.
For market-watchers and investors, a divergence between the rhetoric from the US Federal Reserve at their meeting yesterday and that from the Bank’s today can be observed.
Fed Chair Jerome Powell warned markets not to underestimate the likely path of interest rates while the MPC effectively implied the opposite about UK rates.
This has resulted in GBP weakness in the market today and could continue to have that effect in the short term. GBP weakness benefits those companies in listed in the UK who derive a considerable proportion of their earnings overseas, like the oil companies, which also look set to continue to benefit from the prevailing environment of high prices.