11 April 2023 - Bank of England to face a dilemma
The hike in utility prices that came into force on April 1st has had the effect of slowing retail activity, even though the wholesale cost of energy has fallen since last Summer. Should this continue rather than being a knee-jerk reaction, the Bank of England will be faced with an awkward decision when it next meets early next month. Inflation is falling, and while that is expected to continue by the markets, there are two imponderables. The first is core inflation, which doesn’t include energy and foodstuffs, is not reacting to rate hikes as much as the headline. Furthermore, there is disagreement between members of the Monetary Policy Committee about how much the effect of recent rate hikes are still to be seen in economic activity have interest rates reached the point where they are restricting activity. It could be, as argued by MPC member Silvana Tenreyro, that rate increases that have taken place since the turn of the year have not yet had their desired effect. This may be in the course of moving rates into restrictive territory, and may cause inflation to fall too quickly, and have the knock-on effect of driving the economy into a recession. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.