Will the BoE unveil a surprise rate hike?

09/27/2022 | 05:04am

The fallout from Liz Truss mini budget was strong, with the pound falling to its lowest against the USD yesterday, to $1.05.

Investors expressed doubts that the UK was going to be able to finance the close to £45bn stimulus unveiled by the government on Friday, especially as central banks increase their rates across the world.

This led the Bank of England to issue a statement yesterday. It said “it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly”, and that it will “not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term”. This means that a surprise rate hike could soon be announced?

According to analysts at Berenberg, the government’s new ‘Growth Plan’ is “not as misguided as the initial negative market reaction suggests”, but “because the UK has damaged its once strong credibility with a poorly managed Brexit and persistent threats of a UK-EU trade war, it no longer enjoys the benefit of the doubt.”

Among stocks, British holidays group Saga dropped 20% after it slashed its full-year profit forecast and reported a loss for the first half of the year.

United Utilities Group also said that it doesn’t expect to meet its guidance for the full fiscal year ending March 31 due to inflation.

 

Things to read today:

Morgan Stanley Says Dollar Surge Tends to End in Crisis (Bloomberg)

Markets doubt Bailey can avoid emergency rate rise after plunge in pound (Daily Telegraph)

China Reins in its Belt and Road Program, $1 Trillion Later (WSJ)

MarketScreener.com 2022
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