The central bank sees GDP contract by 0.1% in the third quarter, instead of the previously predicted 0.4% expansion. This means that the country is already in recession, since it would have recorded two straight quarter of negative growth.

In addition to raising rates, the BoE started gilt sales as part of normalization efforts. It is planning to reduce its gilt holding by £80bn over 12 months, to £758bn.

The BoE also criticized the “Growth Plan” of Prime Minister Liz Truss, arguing that the “Energy Price Guarantee” for households and firms would “lower and bring forward the expected peak in CPI inflation”, but would mean the “pressure of demand relative to supply was likely to be stronger than previously expected”.  According to Berenberg, "the BoE’s initial verdict seems clear: less inflation than previously thought near term, but possibly more than expected further out."

The private bank adds that "by judging by the balance of votes and the BoE’s warnings about Trussonomics, rates are likely to rise further and remain higher over the medium term than we had previously expected."

This morning, the FTSE 100 was down 0.8%, as new finance minister Kwasi Kwarteng presented the Growth plan, which includes close to 200 billion pounds of tax cuts, energy subsidies and planning reforms.

Among stocks, Smiths Group gained after it posted an upbeat guidance, while Made.com dropped 36.0% after it announced job cuts.

 

Things to read today:

Danny Blanchford Criticises Truss and Says Short the Pound (Bloomberg)

A Decision Tree for Biden if Putin Goes Nuclear (Bloomberg)

Liz Truss tax-cut plans will leave £100 mm hole for years (The Times)