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Another day, another hike. On Wednesday, the US Federal Reserve announced its latest policy decision to raise its interest rates from 3.25% to 4%, to its highest level since January 2008.
On Thursday, it was the Bank of England’s turn to announce its decision. As expected, the central bank raised its interest rates by 0.75% to 4%. It was the highest single increase since 1989.
Bank of England highlighted that its biggest job is to bring inflation back to its 2% target. The bank expects inflation to rise in Q4 but start falling from early next year.
”Inflation is too high. It is well above our 2% target. High energy, food and other bills are hitting people hard,” the bank said in a statement.
”It’s our job to make sure that inflation returns to our 2% target. This month we have raised our interest rate to 3%. In total, since December 2021, we have increased our interest rate from 0.1% to 3%.”
”What will happen to interest rates will depend on what happens in the economy. At the moment, we expect inflation to fall sharply from the middle of next year.”
As for the economy, the central bank did not have the most positive outlook for the near future.
It now expects the recession to last for a prolonged period.
”There has been a material tightening in financial conditions, including the elevated path of market interest rates. In addition, high energy prices continue to weigh on spending, despite an assumption of some fiscal support for household energy bills over the next two years. As a result, the UK economy is expected to remain in recession throughout 2023 and 2024 H1, and GDP is expected to recover only gradually thereafter.”
The Pound was weaker against all major currencies on Thursday, falling the most vs. the US Dollar.
Cable was down by around 1.93%, trading at 1.11771 level.
The next Bank of England rate decision will be on 15th December.
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