As someone teaching a six-year-old halves and quarters this summer (don't worry, sometimes it's with ice cream) the interest rate decision today feels familiar. All day Bloomberg's Markets Today live blog — the Roman Forum of informed debate for these sorts of events — has boiled down to a discussion between 0.25 and 0.5 percentage points. After last month's half point rise by the Bank of England — the much-vaunted slamming on the brakes as gentle nudges weren't working — today was a reversion to the more modest tap of 25 basis points. If this piece by Bloomberg's Alex Wickham is anything to go by, you can hear the exhalation of relief from the Treasury. Last week, Alex revealed grave concern inside No. 11 that the Bank of England might go too far. Today's decision reflects the big change in the last month — the fact that inflation has dropped below 8%. Bank of England (BOE) in the City of London Photographer: Chris Ratcliffe/Bloomberg The bad news for the government — though it was largely priced in — is that today's increase takes us to a 15-year high. Slowly rolling agony for those remortgaging, and for businesses too. Wilko, a British low-cost retailer with 400 stores, signaled it is at risk of insolvency, putting thousands of jobs in jeopardy. One of the UK's best businessmen says these rates should be kept in perspective. Speaking to Bloomberg's In The City podcast, Pret a Manger and Itsu founder Julian Metcalfe sees this as nothing compared to the economy in which he launched Pret in 1986: "Everyone's complaining about 5% and it's the end of the world. Back then I remember we paid 14%." But today's 25 basis point increase makes for slightly lower rates than the fevered speculation that kicked off after the last hike — which counts for sort of decent news. Today the Bank of England also predicted that the government will hit its December target to have halved inflation within the year (a prediction in Alex's piece too.) Now the chat is about what next. Here's Bloomberg's David Goodman with what sounds like a HIIT class: "Market bets essentially suggest the hiking cycle will be done this year. Give or take a few basis points, the current implied path broadly suggests a 25 bp move in September, and then one more in either November or December. So hike-skip-hike-pause or just hike-hike-pause. Of the two, a second hike in November may be more likely because that's another meeting with a press conference. But if either happens, the cycle will be wrapped up before we enter the likely year of the next election, a potential positive for Sunak."
Governor Andrew Bailey was having none of it at this afternoon's press conference in the Bank of England dungeon — "I don't think it's time to declare it's all over" — and indicated it's jobs and wages data policymakers are watching as closely as, if not more than, inflation figures. But Bloomberg's Francine Lacqua asked everyone's burning question — when will rates start to come down? "Nice try," Bailey said to her, adding that it's "far too soon to speculate." David Goodman says market pricing this afternoon suggests traders believe a cut could "come into view next summer." Watch this space. |
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