Bank of England Halts Aggressive Interest-Rate Hike Cycle Amid Recession Concerns

Bank of England Halts Aggressive Interest-Rate Hike Cycle Amid Recession Concerns

The Bank of England has paused its aggressive interest-rate hike cycle, due to growing concerns about an impending recession outweighing worry about inflation. After 14 consecutive rate hikes since December 2021 when rates were at 0.1%, the central bank decided to maintain the key rate at 5.25%. The Monetary Policy Committee was split, with five members voting to keep rates steady and four advocating for an increase to 5.5%. Governor Andrew Bailey, holding the deciding vote, opted to maintain the rate.

Although the Bank of England signaled a temporary pause, it emphasized readiness to respond if inflation, currently more than three times above the 2% target, doesn’t decrease as expected. Market indicators and many economists are increasingly betting that UK interest rates may have already peaked. This shift in sentiment led to a depreciation of the pound against the dollar. Investors now anticipate minimal further tightening in the coming months.

The decision to halt rate hikes brings relief to households and businesses grappling with rising borrowing costs since the end of 2021. Concerns about the economic outlook played a role in the decision, with data showing a contraction in output, rising unemployment, and declining job vacancies.

The Bank of England has revised its GDP growth forecast downward, and inflation is expected to drop below 2% in the medium term. Higher rates have had a significant impact on homeowners, with a £15 billion repayment burden expected. Some MPC members have cautioned against overtightening, with several voting to maintain rates.

In addition to the rate decision, the Bank of England has accelerated its quantitative tightening efforts to reduce its balance sheet, providing room for potential future financial stability interventions. Over the next 12 months, it plans to reduce its gilt portfolio by £100 billion to £658 billion, adding to last year’s unwinding of £80 billion.

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Yeah, pull the other one. I breathe a sigh of relief here and look forward to the first month in my recent memory that the cost of my mortgages won’t increase like clockwork. They have gone up 160% in 14 months, and my rents certainly haven’t.

I am a long term kind of guy and remember in October 2022 a guy named Raoul Pal (global bond guru) said this madness may last until the end of 2023 but then quickly, the excuse for another round of “QE forever” will come thick and fast, and the “first world” will find valid reasons why they all have to get back on the infinite debt expansion to save the citizens of the world again. The stealth tax of inflation (hidden inflation by lying about the cost of living increase as Pinocchio’s nose gets longer and longer) will achieve the simultaneous goals of reducing global debt to GDP ratio, whilst not making global citizens feel quite so poor as they felt a minute ago by convincing everyone that “we have inflation under control again”

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There is a myth that the BOE are ‘independent’ from Govt - like all such myths there is only an element of truth.

The BOE have sold off all their corp bonds - mostly at a loss and are continuing to sell their gilts - mostly at a loss.

So when did they begin their aggressive gilt buying programme c/w their aggressive int rate rises - after the govt got rid of Mark Carney.

The stupid theory of creating a recession in order to control inflation belongs to last century thinking - watch when Germany with their historical fear of inflation dating back to the 1930’s finally realize this - likely in the next few months.

Edit: for guys learning the term ‘Gilts’ is used in the UK to define Govt Bonds.