Key events
Policy decisions will be front and center in Europe, with the Bank of England and European Central Bank seen following the Fed with half-point hikes in rates.
— Ajay Bagga (@Ajay_Bagga) December 15, 2022
There could be a three, or even four-way split at the Bank of England today on the interest rate decision (due at noon).
Last month, the Monetary Policy Committee voted by a majority of 7-2 to increase Bank Rate by 0.75 percentage points, to 3%. The two dissenters, Silvana Tenreyro and Swati Dhingra, argued for small increases in base rate.
Michael Hewson of CMC Markets says the MPC could be split again today:
The weak economic outlook will play a part in today’s decision with the real possibility of a three-way split on policy, which will make the prospect of a clear message much more difficult.
We could see some policymakers argue for a 25bps hike as opposed to a 50bps move, while we could also see some push for a move of 75bps in order to front load the hiking process.
Central Bank decisions due today
Swiss National Bank exp 50bps 08:30am
Norges Bank expect 25bps – 90:00am
Bank of England expect 50bps – 12:00pm
ECB expect 50bps – 13:15pm— Michael Hewson 🇬🇧 (@mhewson_CMC) December 15, 2022
Bloomberg reports that Rob Wood, UK economist at Bank of America, said this time policy makers could split four ways.
In that scenario, one member would vote for no change, one for a quarter point, five for a half point and two for a three-quarter point increase. That would mark the deepest division on the MPC since BOE independence in 1997.
Introduction: BoE and ECB expected to hike rates today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Central banks in the spotlight today as the Bank of England and the European Central Bank both set interest rates.
Both banks are trying to fight double-digit inflation (sharply over their targets of 2%) and both are expected to raise borrowing costs by half a percentage point.
That would take UK interest rates up to 3.5%, the highest level since October 2008, up from 3% at present, despite fears the UK is falling into recession.
A 50 basis-point hike is punchy by historic standards, but would actually be a slowdown after the Bank of England lifted borrowing costs by three quarters of a percent last month to 3%, its biggest rise in three decades.
After November’s meeting, the Bank hinted that interest rates wouldn’t rise as high as the markets had been pricing in.
Today’s BoE decision comes at noon, and may not be unanimous. There are nine members of the Bank’s monetary policy committee, and they have a range of views about the risks facing the UK economy.
Victoria Scholar, head of investment at interactive investor explains:
“The Bank of England is expected to vote in favour of a more moderate 0.5 percentage point interest rate increase to 3.5% at its meeting today. This will immediately impact those on variable rate mortgages while those with fixed rate mortgages set to expire soon will have to refinance at higher rates.
When the Monetary Policy Committee last met in early November, it carried out the biggest hike in over 30 years, raising rates by 0.75 percentage points to 3% in attempt to tame the UK’s sky-high inflation and price instability.
At today’s meeting, there are likely to be a range of opinions on policy from members of the MPC. Some hawkish members could vote for a more aggressive 75 basis point hike to help drive inflation and inflation expectations lower while some dovish members could vote for no change at all, fearing the negative impact of too much tightening at a time when the UK is heading towards a recession.
Yesterday, we saw that UK inflation has eased off slightly, with prices rising by 10.7% over the last year, down from 11.1% in October. That will be welcomed by the Bank, but the City doesn’t expect it will be enough to stop another rate hike today.
The BoE has already raised rates at every meeting this year, in a tightening cycle that began last December.
Last night the US Federal Reserve slowed its interest rate hiking cycle, by lifting its target rate by 0.5 percentage points.
But, Fed chair Jerome Powell struck a hawkish tone too, telling reporters that the central bank wants to see “substantially more evidence” that inflation is abating. Fed officials voted to hike rates despite new forecasts showing that the US economy will barely grow next year, while unemployment increases.
USD 🚀 because Fed median 2023 rate forecast > 5.0%
Fed sees weaker growth, higher unemployment and higher inflation in 2023
+50bp Hike to 4.25%-4.5% range
• GDP ⬆️ 2022 ⬇️ 2023 ⬇️ 2024
• Unemployment ⬇️ 2022 ⬆️ 2023 ⬆️ 2024
• Inflation ⬆️ 2022 ⬆️ 2023 ⬆️ 2024— Kathy Lien (@katihylinefx) December 15, 2022
Norway’s Norges Bank, and Switzerland’s SNB, are also setting interest rates this morning.
The agenda
-
8.30am GMT: Swiss National Bank interest rate decision
-
9am GMT: Norges Bank interest rate decision
-
9.30am GMT: Latest weekly ‘business insights’ data from the UK’s Office for National Statistics
-
12pm GMT: Bank of England interest rate decision
-
1.15pm GMT: European Central Bank interest rate decision
-
1.30pm GMT: US retail sales for November
-
1.30pm GMT: US weekly jobless figures
-
1.45pm GMT: ECB press conference
#Markets #brace #Bank #England #interest #rate #decision #business #live
