Bank of England & Real World

Without real-world experience, today’s move by the Bank of England would have cost you serious money. Yes, finally after more than a decade the BOE finally raised rates by 25 basis points to 0.50%. The move has been well telegraphed in recent days and having been confirmed the first thing we see is a 1.5% drop in Sterling. There are always reasons why and this one was no exception. Talk that future hikes will be gradual is the top excuse traders are using for sterling’s decline.
Inflation hit 3% in September of this year well above the 2% inflation BOE target so it was only a matter of time for the hike. However, with the future still uncertain ahead of April 2019 and the end of BREXIT talks, it is likely to take a steady hand to drive the 3% back towards target. Gradual rate increases are not what the currency markets wanted to hear but are has been helpful for the long end of the Gilt curve.
It is going to be an extremely difficult task for the Old Lady as she also tries to encourage foreign investment at a time when all help is needed. A weaker currency will not help that hand, but without it, the labour market will suffer.
Weekly bearish Reversal is down at 1.2811 which may well be the target for tomorrow if we see a 300K Non-Farms Payroll report. The close today will have elected Daily Reversals down from 1.3087.

One comment on “Bank of England & Real World

  1. For years in the UK we have endured the banks robbing savers of interest and pensioners of revenue.

    The stupidly low rates also encouraged people to borrow insane amounts of money and encouraged the house price rises that effectively stalled the next generation from buying property. The whole low interest rate thing stifled lending to business and fueled the austerity destruction of wages.

    Yet here we are, 3% inflation (nearly 5% if you include mortgages and wages).
    Incomes are stagnant, and everyone except the rich are suffering. So the BOE have been forced to raise interest rates as inflation has run away, probably beyond control, and only going to rise further.

    Thus for all I care bank lending rates can climb by a point a week..
    If they did that will cause a massive readjust of prices, incomes, and savers interest.
    Sure some will drown in debt but they shouldn’t have borrowed without anticipating that the gravy train may end at any time.

    To fix this mess may just need a total collapse, a hard reset, and a slap round the face, to bring everyone out of the dream world called instant low price credit.


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