Higher-for-Longer Interest Rate Narrative Became “Louder” as Bank of England Might Not Be Quick to Cut Rates – Analysis

A market report has highlighted some key developments from the past week, including the following updates:

  • Bank of England’s chief economist highlights challenge ahead for policymakers
  • Hotter-than-expected US inflation leads to mixed trading ahead of bank results
  • Microsoft takeover of Activision approved by regulator
  • Middle East conflict contributing to higher oil price
  • Wagamama owner Restaurant Group to be taken private in private equity deal in another blow to London

Responding to some of these news updates, analysts at Hargreaves Lansdown have shared some insights with CI.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, noted:

“The higher-for-longer interest rate narrative just became louder. The Bank of England’s chief economist, Huw Pill, has said the bank won’t be quick to cut rates – even if a moderation of inflation occurs. Simply put, inflation needs to be closer to the 2% target before anyone can get their hopes up that the cost of living and borrowing is about to sweep down to more palatable levels. While this admission is hardly a new direction, it adds weight to just how fine of a balance policymakers are performing. The UK economy isn’t exactly firing on all cylinders looking at the latest GDP read, but the economic breaks have only just started to be pushed with force.”

Sophie also mentioned that US consumer prices “held steady in September, with CPI rising 3.7%. ”

She added that on a monthly basis, inflation crept up “by 0.4%, which was hotter than expected.” Unfortunately, the important core inflation number “has edged up even more than the overall picture.”

According to the update, this muddies the water “for the Federal Reserve, which is grappling with a consumer base that’s been much more resilient than first thought. That’s great news for companies in the discretionary spending space, who are relying on volumes to remain high while inflation wreaks havoc with the bottom line.”

However, uncertainty remains “the buzzword of the month, with US policymakers split on which foot to put forward. Inflation’s unexpected turn has led to a sell off in US stocks as well as causing bond prices to fall.” The next catalyst for change “will be the slew of upcoming bank earnings, which offers investors a window into corporate and consumer activity, as well as an outlook for the new year.”

The update also mentioned that after being “forced to give into pressure and tweak the rights of some assets, the UK has cleared the runway for Microsoft’s enormous bid for Activision to land. Microsoft will now become the owner of Call of Duty, World of Warcraft, Overwatch and Candy Crush in a deal the magnitude of which has taken the gaming world by storm.”

In such a rapidly changing sector, regulators “wanted to make sure that Microsoft couldn’t have a total stronghold.” While the slap on the wrist isn’t ideal, it “won’t stop Microsoft from pushing forwards into this exciting, and very lucrative new chapter.”

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