Bank of England Matches US 25 BPS Rate Increase

The Bank of England’s Monetary Policy Committee has increased its Bank Rate by 25 basis points, echoing the move by the US Federal Reserve, which did the same yesterday. Unlike the Fed, the vote was not unanimous in a 7-2 majority decision. The MPC said that two members preferred a pause – something the Fed considered but decided to move forward with its tightening policy.

The statement noted the recent stress in the banking sector and the possibility of a broader impact adding that the UK banking system remains resilient.

GDP is expected to increase slightly in the second quarter, compared with the 0.4% decline anticipated in the February Report.

Twelve-month CPI fell from 10.5% in December to 10.1% in January but then rose to 10.4% in February – an unexpected turn of events. CPI is still predicted to “fall significantly”y in Q2 2023.

CI received feedback on the rate decision from several Fintechs.

Giles Coghlan, Chief Market Analyst, consulting for HYCM, stated:

“With regulators battling to avert banking contagion and inflation coming in hotter than expected, the stakes couldn’t have been higher at today’s Monetary Policy Committee meeting. If it were not for yesterday’s surprise CPI reading, the Bank of England’s decision to hike rates today would have been finely balanced – even in the wake of the SVB-Credit Suisse crises, there was a clear argument for holding rates at 4%. However, with inflation proving stickier than expected in the UK, keeping the hammer down on spiralling prices remains the priority and today’s 25bps hike should help to cement disinflationary forces. Two of the nine members voted to keep rates unchanged, but the BoE stated that, despite the recent uptick in inflation, they remain confident that it will come down sharply. Today’s decision could push the pound higher as it revised growth marginally higher for Q2 this year, as well as signalling that the central bank could be readying itself to press pause on its hiking cycle. As such, it may take more of a ‘wait and see’ approach when policymakers next convene in May.”

Shojin CEO Jatin Ondhia called the decision made on a knife edge as the stakes are so high due to the stress within the US and European banking market, which “turned up the head on the Bank of England.”

“Those hoping for a respite from tighter monetary policy may have a longer wait ahead than anticipated, as policymakers grapple with the dual task of confronting inflation and easing bank jitters. As such, in the current climate, investors must stay focused on their individual goals, assess the risk exposure they are comfortable with, and ensure they are using all the tools and techniques at their disposal to protect their wealth against uncertainty and changing market conditions. If they do, they could find new opportunities amid all the turbulence. From diversification to tax efficiency, agility will be the watchword as the foggy conditions persist.”

Manx Financial Group CEO Douglas Grant, the increase was expected after Wednesday’s surprise inflation jump and the turmoil in the banking sector:

“SMEs must take this as a reminder to review their existing lending structures and ensure they are prepared for further hardship. While improving GDP data provided a glimmer of hope for small businesses, the interest raise is a worrying numbers and indicates that a recession is likely to afflict the UK in 2023 as the Bank of England remains hawkish in its approach. Many SMEs prepared for these hikes by listening to lenders and locking in their debt into fixed rate structures, but it is now too late for other businesses that were not as forward-thinking. As businesses desperately require liquidity provisions to counteract supply chain issues, increases in wages and a worsening cost-of-living crisis, demand for working capital will continue to rise. Our research reveals that over a fifth of UK SMEs that required external finance over the last two years were unable to access it. Moreover, over a quarter of SMEs have had to stop or pause an area of their business due to a lack of finance. The lack of availability of finance is costing SMEs and the UK economy in terms of growth at a time when it is needed the most. The level of growth that is being prevented is significant and will require novel solutions to bridge this funding gap.”

Grant called for more government action to support SMEs, once again calling for permanent government-backed loans to guarantee the future of UK firms.

“As the government looks for ways to power the economy’s resurgence in 2023, the importance of a permanent scheme cannot be understated. It could act as the fundamental difference between make or break for many companies and, in turn, our economy. We hope this becomes a reality.”

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