Stocks soar after Bank of England leaves interest rates on hold and warns of recession risk – as it happened
"Bank Of England's Call: A Critical Decision"
Breaking news: The Bank of England has decided to maintain the current UK interest rates and not make any changes.
The Bank's monetary policy committee has chosen to maintain interest rates at 5.25% for the second consecutive meeting, which is the highest it has been in 15 years.
The Bank has been attempting to control inflation, resulting in 14 rises in the cost of borrowing between December 2021 and August of the current year.
The decision indicates that the MPC is continuing with the strategy of using the 'Table Mountain' technique to combat inflation. This means that the borrowing rates will remain at their present high levels until they are certain that inflation will decrease steadily and remain at the targeted rate of 2%.
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The stocks in London are still going up due to the belief that the maximum interest rates in the UK have been achieved.
The FTSE 100 has risen by 1.5%, and the smaller FTSE 250 has increased by 3%, even though the Bank of England has stated that monetary policy will likely have to remain restrictive for a long time.
Government bonds have experienced an increased demand, indicating that investors predict borrowing expenses won't escalate further.
The Bank of England expressed its concern as it decided to maintain the existing UK interest rates at 5.25%.
The prediction was made that the economy is likely to almost reach recession in the upcoming year. The forecast is that the economy will stay constant for the following four quarters, given that interest rates go in the same direction as predicted by financial markets.
At a briefing with reporters, Governor Andrew Bailey chose not to express whether the agony that households are experiencing is a justified cost.
He made a promise to maintain strict monetary policy for a sustained period in order to eliminate inflation from the economic system.
At the moment, our monetary policy is quite strict. If we keep going like this for a while, we can forcibly decrease the amount of inflation in our economy. This is our intended course of action.
Bailey made a forecast that the rate of inflation is going to drop below 5% by October, because of decreased energy expenses…
He seemed displeased that the previous governor, Mark Carney, had publicly supported Rache Reeves, the Labour shadow chancellor, the prior month.
And now for the remainder of the latest updates:
Watch this short video featuring the Bank of England's head honcho, Andrew Bailey, as he sheds light on today's announcement regarding the interest rates.
Hope For A Peak In Interest Rates Boosts Markets
The FTSE 250 stock index in the United Kingdom, which monitors businesses of moderate size, is rapidly increasing.
The FTSE 250 has surged up 3% today, gaining 520 points to hit 17,706 points. This marks the index's third highest increase this year.
According to Susannah Streeter, who is the boss of Hargreaves Lansdown's money and markets division, people in the financial industry think that interest rates have reached their highest point at 5.25%.
Despite not being a decision that everyone agreed on, there is a notable increase in the sentiment that it is necessary to give more time for the effects of the interest rate increases to become apparent. The economy's slow progress has become a more prominent issue as the high costs of borrowing are negatively impacting financial stability. Furthermore, policymakers are expressing alarming predictions of a long-lasting stagnation state that could continue until 2025.
The recorded minutes show that the UK's Gross Domestic Product is predicted to have stayed the same during the third quarter, which is not as strong as what was estimated at the beginning. The economy barely grew in August and there has been a sharp increase in the number of companies that are unable to pay their debts and are forced to go bankrupt.
Even though inflation exceeded the bank's goal by over three times, it's predicted that it significantly decreased during October. Additionally, the expansion of wages in the non-governmental sector is also slowing down. It's no wonder that most decision-makers want to put a stop to the strenuous routine of increasing interest rates.
Interest Rates Likely To Drop, Predicts Larry Elliott
Larry Elliott, our economics editor, predicts that the next interest rate move will most probably be a decrease, despite the hawkish tone of the Bank of England.
After being present at the Bank's meeting, he expresses concern that policymakers may keep interest rates higher than necessary for an extended period. This is worrisome because of the current state of our economy, which is not performing well, and inflation is continually decreasing.
The current state of the UK economy is not very encouraging as there is a noticeable increase in unemployment rates, a decrease in business investments, and a decline in house prices. There seems to be no significant improvement in the economy as it is expected to remain stagnant or may even fall into recession. This unpleasant update from the Bank of England's quarterly report on the economy is particularly troublesome for Rishi Sunak.
The leader of the country is heading a government that is not doing well in the polls and is in desperate need of positive developments ahead of the next general election that must take place by January 2025 at the latest. Threadneedle Street predicts that there won't be many positive events to boost the morale of voters between now and election day.
According to the Bank's prediction, assuming the city's guesses for interest rates remain steady at 5.25% until late 2024, the economy will not improve at all in 2024. It's also possible that things will get worse and the country may fall into a recession. The expectation is for unemployment to increase gradually and reach a little over 5% by the beginning of 2025. Additionally, it's predicted that there will be another 5% decline in house prices this year, and this will repeat again in 2024.
UK Economy Stuck In Stagnant State
The monetary policy report from the Bank of England features a disheartening visual representation, indicating a prolonged period of stagnation for the economy of the United Kingdom.
The prospects for the world economy have improved slightly, yet not significantly.
Throughout 2023, worldwide economic expansion has continued to be lackluster. According to predictions, the total Gross Domestic Product (GDP) of the world, taking into account the United Kingdom, is anticipated to have gone up by roughly 0.4% during the third quarter of 2023. This figure is around the same as it was in the second quarter, and fits well with what was projected in the August Report.
The growth rate for the third quarter of 2023 is predicted to be approximately 1.5%, which is lower than the average growth rate of 2.4% between 2010 and 2019.
According to recent signs, like the PMIs of different countries, it seems that the growth of worldwide GDP will probably stay low during the fourth quarter.
Financial professionals in London's urban area are disregarding the Bank of England's advice that the interest rates will continue to be elevated for an extended period.
Currently, the FTSE 100 has risen by 1.6% or 117 points at 7460 points. This marks a two-week high for the index.
Investors are optimistic that interest rates in the United Kingdom have reached their highest point.
According to Monex Europe's FX Market Analyst Nick Rees, expressed that
During its recent meeting, the MPC seemed to have a somewhat cautious approach towards tightening, as per the statement of Governor Bailey who mentioned that it is premature to even consider decreasing interest rates.
In addition, the Bank has become more certain about the length of time that rates will need to remain restrictive, changing their language from "sufficiently long" to "extended period".
However, the current state of communication doesn't suggest that policymakers are planning to increase interest rates. The Committee's decision to maintain the rates and the concerns mentioned in the minutes about the bank overdoing it are proof.
As the press conference held by the Bank of England came to a close, a query concerning government policy was raised.
A: How would the economy be affected by tax reduction or other types of financial relaxation?
Andrew Bailey responded stating that the responsibility of tax cuts lies solely with the government and not the Bank of England. He avoided giving a judgement on the matter.
Bailey highlights that the BoE's predictions are grounded on the policies the government has publicized.
Anything disclosed during the autumn statement will be considered when making our predictions.
Thames Water To Cut 300 Jobs Post 'dance With Devil'
Thames Water is feeling the squeeze and has decided to make a tough call by slashing approximately 300 positions. The Bank of England is not involved in this decision.
The monetary condition of the largest water supplier in Britain has been placed under close observation after reports emerged that emergency nationalisation plans were being prepared. The cash-strapped firm has managed to obtain £750m from its current shareholders, however, it will require additional funds later on in order to modernize London’s antiquated water infrastructure.
The company has decided to let go of 89 workers from its retail department and 39 from its digital division. In addition to this, roughly 160 job openings that were available will no longer be offered.
Gary Carter, who holds a national position in the GMB union, criticized the way the company has been controlled ever since it was sold off to private investors in 1989.
Thames Water has engaged in immoral behavior and now its employees are suffering the consequences.
According to a representative of Thames, they stated:
The past year has proven to be quite difficult for our business, and we are still maintaining strict financial discipline across the entire company to ensure we operate within our budget.
Our aim is to reduce the number of forced redundancies as much as we can by offering options such as relocating to a different position or volunteering for redundancy.
According to The Guardian, Thames Water's Chief Digital and Information Officer, Norma Dove-Edwin, has left the company due to personal reasons. Dove-Edwin, who had previously worked for National Grid, had only started her job at Thames Water last year. John Brocking, who oversees technology, will serve as her temporary replacement.
Thames' current chairman, Sir Adrian Montague, is presently in search of a permanent CEO. He took on the role during the summer.
Are you able to accept a slight economic downturn in order to reduce inflation? Is it possible that we are heading towards a turbulent economic situation?
The statement made earlier by Deputy Governor Ben Broadbent about the Bank's policy for inflation control being unaffected by any growth threshold has been reiterated. This means that growth levels do not dictate the actions taken by the Bank in terms of policy implementation.
"Mark Carney's Endorsement Of Rachel Reeves Caught Bailey Off Guard"
Do you believe that it was the right thing for ex-governor Mark Carney to support Rachel Reeves? Would you ever consider doing something like that?
Andrew Bailey firmly declares that the Bank of England maintains its independence and political neutrality.
Let me make it crystal clear that this establishment's very essence resides in that particular aspect.
However, ex-governors have the freedom to make choices on their own.
According to Bailey, Carney kept his endorsement for shadow chancellor Reeves a surprise during the Labour Party conference last month, failing to inform Bailey beforehand. It came as a shock to Bailey.
"He wasn't required to inform me, therefore I was not aware beforehand."
According to Bailey, he is currently not considering "what comes after".
He asserts that both the Bank and himself are impartial and autonomous, without any political affiliations.
Bailey asserts that it is utterly important to their organization. He then expresses regret for sounding like he is preaching.
