Bank Hands Are Tied

24th March 2023

Jo Thorne of Wealth club comments on the latest interest rate rise.

Rates rise 0.25% to 4.25%.

The MPC voted 7-2 in favour of the rise, with 2 members voting to pause rate rises.

BoE's Financial Policy Committee states the UK banking system remains resilient.

No recession in 2023, and stronger than expected GDP for Q2 2023.

Global GDP growth buoyed by stronger growth in China.
CPI inflation is still expected to fall significantly, and fall further than forecast in the MPC's February report.

Jonathan Moyes, Head of Investment Research, Wealth Club said, "The Bank’s hands have been tied by the 0.25% rate rise in the US and the higher than-expected UK inflation print earlier in the week. A 0.25% rise was expected.

However, we understand why there is a growing chorus of commentators calling for a pause here. The US and Europe have come very close to a banking crisis over the previous two weeks and monetary conditions will tighten significantly as a result, placing further strain on the sector. We will have to wait for the May report to get the MPC’s full assessment of the recent turmoil, however, it is pleasing to see the FPC reiterate its confidence in the strength of the UK banking sector.

With inflation expected to fall rapidly in the near term and interest rates close to their peak, it seems the inflation beast has been tamed. However, we may soon discover "the cure is worse than the disease" as the banking sector groans under the weight of aggressive rate rises."