Market Report - 14/12/2023
Bank of England hold interest rates at 5.25%
The Bank of England have once again held their interest rates at 5.25% for the third time in a row. Governor Andrew Bailey said there is “still some way to go” in its plan to tackle rising inflation, and investors have now started to amend their bets for rate-cuts next year.
Following this news the pound rose above the 1.27 level against the USD, and the mid-1.16’s against the Euro immediately after the decision, with stocks holding onto gains we saw earlier in the session.
In the minutes that proceeded the meeting, the Monetary Policy Committee also stated that they are not afraid of further tightening policy if there are signs of more inflationary pressures; this is despite the money markets pricing in 4 rate cuts for 2024. Furthermore, the MPC also stated that interest rates would need to be kept high for “an extended period of time”, with the door left open to further rises.
The guidance from this morning is in stark contrast to the rhetoric we saw just last night from the Federal Reserve, which triggered a sell-off of the USD overnight after the FED opened the door to interest rate cuts in 2024.
Further points to mention, is that the MPC expect UK Gross Domestic Product to be flat in the fourth quarter, compared to an initial estimate of 0.1% in November (household spending has diminished more than expected). Bailey also added that the decision over whether to keep the rate unchanged or lifted would come down to “finely balanced” policy.