Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Bank of England poised to raise rates by most in 33 years

Bank of England poised to raise rates by most in 33 years

The Bank of England looks set to raise borrowing costs by the most since 1989 next week even as it prepares for a recession that could be deepened by spending cuts under new Prime Minister Rishi Sunak.

As well as raising interest rates on Thursday for an eighth meeting in a row to tame inflation above 10% - this time by three-quarters of a percentage point according to most analysts - the BoE is also due to become the world's first big central bank to start selling bonds from its stimulus stockpile on Tuesday.

After a period of turmoil in Britain, caused by the economic plans of former prime minister Liz Truss which sparked a bond market rout, the BoE's double-barrelled monetary tightening might look at odds with its current forecasts that the economy will be shrinking until 2024.

But with inflation still set to be way above the BoE's 2% target in 2023 and some of Truss's costly help for households and businesses still in place, the only way is up for borrowing costs.

"As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August," BoE Governor Andrew Bailey said on Oct. 15.

On Aug. 4, the BoE raised rates by half a percentage point, its biggest increase in 27 years, and did so again in September.

Some of Bailey's inflation worries eased two days after he spoke when new finance minister Jeremy Hunt reversed almost all the tax cuts planned by Truss and shortened her income-boosting energy cap programme to six months rather than two years.

But the ongoing spread of inflation through Britain's economy this year means the BoE remains on high alert.

Oxford Economics Chief Economist Andrew Goodwin said the Monetary Policy Committee still faced a difficult balancing act.

"Many economic indicators have weakened since the committee last met in September, but the jobs market has remained tight and pay growth strong," Goodwin said.

FISCAL UNCERTAINTY


Investors are putting a roughly 90% chance on a 75 basis-point hike in Bank Rate to 3% on Nov. 3. That would be less than the full percentage-point expected before Truss's plans were scrapped but would still be the biggest hike by BoE in 33 years.

A Reuters poll of economists published on Tuesday showed most expected a 75 basis-point increase although a sizeable minority saw a bigger increase to 3.25%. On Friday, analysts at ING forecast a smaller, 50-basis point rise.

The picture further ahead is clouded by the delay to Sunak and Hunt's plans for repairing the public finances.

They have warned of tough decisions. British media reported they were considering 50 billion pounds of tax increases and spending cuts, more than estimates of the hole in the budget.

Hunt had been due to announce the plan on Oct. 31 but it was delayed until Nov. 17 after Sunak became prime minister.

Interest rate futures show investors are much less worried about inflation than they were just a few weeks ago with Bank Rate expected to peak at about 4.75% in 2023, down from more than 6% before the sudden end of "Trussonomics."

Deputy Governor Ben Broadbent added an extra dose of cold water on Oct. 20, saying the borrowing costs priced by investors in the preceding days would hammer the economy.

The BoE's plan to start selling some of the bonds it bought since 2009 to support the economy will also ease some of the pressure to raise rates.

Deutsche Bank said the planned 40 billion pounds' worth of sales over the next year were equivalent to about 25 basis points of rate hikes.

But Goodwin at Oxford Economics warned of potential dangers in the plan. "There is no pressing reason to kick off quantitative tightening and bond sales run the risk of triggering renewed turmoil in the gilts market," he said.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Satirical Sketch Sparks Political Spouse Feud in South Korea
Indonesia Quarry Collapse Leaves Multiple Dead and Missing
South Korean Election Video Pulled Amid Misogyny Outcry
Asian Economies Shift Away from US Dollar Amid Trade Tensions
Netflix Investigates Allegations of On-Set Mistreatment in K-Drama Production
US Defence Chief Reaffirms Strong Ties with Singapore Amid Regional Tensions
Vietnam Faces Strategic Dilemma Over China's Mekong River Projects
Malaysia's First AI Preacher Sparks Debate on Islamic Principles
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
Russia's Fossil Fuel Revenues Approach €900 Billion Since Ukraine Invasion
Alcohol Industry Faces Increased Scrutiny Amid Health Concerns
U.S. Goods Imports Plunge Nearly 20% Amid Tariff Disruptions
Italy Faces Population Decline Amid Youth Emigration
Trump Accuses China of Violating Trade Agreement
OpenAI Faces Competition from Cheaper AI Rivals
Foreign Tax Provision in U.S. Budget Bill Alarms Investors
Russia Accuses Serbia of Supplying Arms to Ukraine
Gerry Adams Wins Libel Case Against BBC
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
EU Majority Demands Hungary Reverse Anti-LGBTQ+ Laws
Top Hotel Picks for 2025 Stays in Budapest Revealed
Iron Maiden Unveils 2025 Tour Setlist in Budapest
Chinese Film Week Opens in Budapest to Promote Cultural Exchange
Budapest Airport Launches Direct Flights to Shymkent
Von der Leyen Denies Urging EU Officials to Skip Budapest Pride
Alcaraz and Sinner Advance with Convincing Wins at Roland Garros
EU Ministers Lack Consensus on Sanctioning Hungary Over Rule of Law
EU Nations Urge Action Against Hungary's Pride Parade Ban
Putin's Helicopter Reportedly Targeted by Ukrainian Drones
U.S. Considers Withdrawing Troops from Europe
Russia Deploys Motorbike Squads in Ukraine Conflict
Critics Accuse European Court of Human Rights of Overreach
Spain Proposes 100% Tax on Non-EU Holiday Home Purchases
German Intelligence Labels AfD as Far-Right Extremist
Geert Wilders Threatens Dutch Coalition Over Migration Policy
Hungary Faces Multiple Challenges Amid EU Tensions and Political Shifts
Denmark Increases Retirement Age to 70, Setting a European Precedent
Any trade deal with US must be based on respect not threats', says EU commissioner
UK Leads in Remote Work Adoption, Averaging 1.8 Days a Week
Thirteen Killed in Russian Attacks Across Ukraine
High-Profile Incidents and Political Developments Dominate Global News
Netanyahu Accuses Western Leaders of 'Emboldening Hamas'
Ukraine and Russia Conduct Largest Prisoner Exchange of the War
×