Published March 23, 2022 6:00 pm est

by  Richard F. Cason,
Richard F. Cason
Editor in Chief, 
NewsMovesmarketsForex

 

Key Issues-

  • BOC raised interest rates by 0.25 bps to 4.25 percent on March 23, 2022, by MPC 7-2 vote
  • Global growth expected to be stronger than project, Wholesale gas futures and oil prices have fallen
  •  Feb CPI inflation increased slightly to 10.4%, Food and Core goods price  inflation have recently been significantly stronger than projected
  • Labor market has been tight however in the short term GDP and employment are likely to be somewhat stronger  than expected  
  • Energy price inflation continue to decline anchored by lower wholesale gas prices
  • Wage growth in  the Euro area has continued to increase as well  

 

On March 23, 2023, the Bank of England has recently announced a modest increase in interest rates, from 0.25% to 4.25%. This decision has been made in response to the current state of the UK economy, which has been facing some challenges in recent years.
 
One of the main reasons for this increase in interest rates is inflation. Inflation has been rising steadily in recent years, and it is Bank of England gettynow above the Bank of England’s target of 2%. The increase in interest rates is expected to help slow down inflation by reducing consumer spending and encouraging saving.
 

According to the BOE, MPC states in reflection to the U.S. Banking crisis in the technology sector, that: 

Silicon Valley Bank and in the run-up to UBS’s purchase of Credit Suisse, and reflecting market concerns about the possible broader impact of these events. Overall, government bond yields are broadly unchanged and risky asset prices are somewhat lower than at the time of the Committee’s previous meeting.

The Bank of England’s Financial Policy Committee (FPC) has briefed the MPC about recent global banking sector developments. The FPC judges that the UK banking system maintains robust capital and strong liquidity positions, and is well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC’s assessment is that the UK banking system remains resilient. 

Another factor that has contributed to the Bank of England’s decision to increase interest rates is the state of the housing market. House prices in the UK have been rising rapidly in recent years, with many people struggling to get on the property ladder. The Bank of England hopes that by increasing interest rates, it will help to cool down the housing market and make it more affordable for people to buy homes.
 
While the increase in interest rates may be seen as a positive move for the overall health of the UK economy, it will have some immediate impacts on individuals and businesses. For those with variable rate mortgages, this increase will mean higher monthly mortgage payments. This could lead to financial difficulties for some households, especially those who are already struggling to make ends meet.
 
Additionally, businesses that rely on borrowing to invest and grow may also feel the impact of the increase in interest rates. The cost of borrowing will go up, which could limit their ability to expand and create jobs. It is important for the government to work with businesses to ensure that they are able to navigate this change in the economic landscape.
 
Despite these short-term impacts, the long-term benefits of a stable and growing economy are significant. The increase in interest rates is a sign of confidence in the UK economy and a step towards ensuring its long-term success. The Bank of England has stated that this is a “Global growth is expected to be stronger than projected in the February Monetary Policy Report, and core consumer price inflation in advanced economies has remained elevated. Wholesale gas futures and oil prices have fallen materially.”  
 
It is important for individuals and businesses to plan ahead and seek advice if needed, to ensure that they are able to manage any financial changes that may arise. While the increase in interest rates may cause some short-term difficulties, it is important to remember that it is a necessary step towards building a stronger and more stable economy for the future.
 
The state of the UK economy has been a topic of concern for many in recent years. The uncertainty surrounding Brexit, coupled with rising inflation and a rapidly growing housing market, has made it difficult for businesses and individuals to plan for the future. However, the Bank of England’s decision to increase interest rates is a sign of confidence in the UK economy and a step towards ensuring its long-term success.
 
It is important for the government to continue to work towards creating a more stable economic environment for businesses and individuals alike. This includes measures to address the housing crisis and to provide support for those who may be struggling as a result of the increase in interest rates.
 

Overall, the Bank of England’s decision to increase interest rates is a cautious one, taking into account both the need to tackle inflation and the importance of maintaining economic growth. In retrospect to the recent economic developments the BOE stated GBPthat: “The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labor market conditions and the behaviors’ of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

The MPC will make a full assessment of all of the news since the February Report, including the economic implications of recent financial market and banking sector developments, as part of its forthcoming May forecast round.

The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.

 

Expert Central Bank Analysist by World Renown ADM Investor Services International Chief  Economist Marc Ostwald

Marc Ostwald  who is an expert Chief Economist & Global Strategist with ADM Investor Services International head quartered in London England, Marc-Ostwald

gives his insights and opinion on what he thought the Bank of England would do in Thursday interest rate decision meeting held in London,  England Mr. Ostwald eloquently stated that:

 “ Ahead of the BoE rate decision, CPI is expected to rebound in m/m terms to 0.6% m/m, which would see the y/y pace ease modestly to a still very high 9.9%, with core CPI seen edging down 0.1 ppt to 5.7% y/y.

January’s downside miss was above all due to some unexpected downward pressure from Services (aboval due to airfares), which is likely to have been a temporary factor, and seen partially unwound this month, which along with food will largely offset a further fall in non-food goods prices.

But with last week’s labour data confirming the labour market remains tight, even if wage pressures appear to have peaked, and given some stimulus from the Budget, the BoE majority is expected to opt for one further 25 bps hike to 4.25%.

Markets are priced for only a 60% probability of one further hike (by August), and see Base Rate at the 4.0% at the end of the year.

Whether the BoE hikes or not is perhaps rather moot, the outlook for the UK economy remains challenging on a short to medium term basis, and it is fiscal policy and legislative measures which will ultimately decide whether the many challenges the economy faces will take more or less time to overcome.

Friday’s Retail Sales are seen posting a further modest rise (0.2% m/m) after seeing some unexpected strength (0.5% m/m) in January, and despite some better news on energy prices, household consumption is set to remain very sluggish, with risks for this month’s reading skewed somewhat to the downside of the consensus.“

 

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Expert Economist:

Marc Ostwald an expert Chief Economist & Global Strategist with ADM Investor Services International

 

Marc Osterwall is a world renowned  Expert Economist who Analyzes and forecast macro/microeconomic trends and central bank policies on a exponential economic level.  Mr. Osterwall is a regular guest on Bloomberg BNN, HT & Radio, BBC, CNBC, Le Fonti International and is widely quoted on newswires, newspapers, and other digital media worldwide.  He is also a regular conference speaker and guest lecturer at various universities. 

  

 

 

 

 

 

 

 

 

 

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