The Bank of England: From whatever it takes to whatever it breaks
Markets have responded positively to the effective cancellation of Kwasi Kwartang’s ‘mini-budget’ from 23 September that new Chancellor Jeremy Hunt announced yesterday.
However, it remains clear that the Bank of England is more focussed on the longer-term implications of inflation.
The Old Lady confirmed it is no longer willing to offer unending support to markets.
The Bank is currently making a number of remarkable shifts, said City analyst Hal Cook, Senior Investment Analyst at Hargreaves Lansdown, today.
“For the last decade, the Bank of England (BoE) has been in ‘whatever it takes’ mode,” he explained.
Interest rates
While interest rates rose from 0.25 per cent to 0.75 per cent in 2017/18, this was more about policy ‘normalisation’ than it was about cooling the economy – even though inflation was above target at the time.
“Hence why it was two 0.25 per cent rises, 10 months apart,” Hal noted.
“Things have changed now and while the BoE has stepped in to stop gilt markets falling apart over the last couple of weeks, that has already ended – for now at least,” he added.
“By raising rates further, it risks hurting the economy and tipping the UK into recession.”
City analyst Hal Cook
“For many, this will be the first time that they have been in a position where the BoE isn’t going to necessarily come to the rescue, a scenario we haven’t been in since before the financial crisis, arguably longer,” Hal pointed out.
At the same time, there is the underlying reason for the step change in approach: generationally high inflation,” he noted.