The BOE meets every Thursday at the BOE. Rates are expected to rise another 50bpsSignals that more hikes might be needed. Here’s why, and how the market might react:
Economic data hasn’t been as bad as expected
The BOE and the UK Treasury both have already acknowledged the country is in a recession, although technically there haven’t been two consecutive quarters of negative growth so far. The current quarter is expected to be the worst, as there has been only one quarter of negative growth.
The data since the last BOE meeting has been in line to the assessment of a recession but not as bad than expected. The BOE is now faced with a difficult situation because inflation remains in double digits. In other words, stagflation, which can be much harder to recover from, because central banks and governments can’t do the standard things to break a country out of recession.
There are many possibilities
Inflation is usually reduced when there has been a negative economic downturn. This gives the central banks ample room to ease and allows for government spending. But the UK’s spending is already well beyond its means, with debt way too high. Inflation high…