BoE: Rate Rise and Recession Fears
Yesterday, The Bank of England met market expectations with rising the base interest rate 25bp to 1%. This was the fourth consecutive time that the BoE raised rates and brings the interest rate in line with where it was last in 2009.Worrying concerns were also expressed by the Bank’s Governor, Andrew Bailey who said that inflation would now surge above 10% (its highest level since 1981), and that the economy would likely begin to contract in Q4 2022. Indeed, Threadneedle Street are forecasting that GDP will be fall 0.25% over 2023. The BoE also voiced concerns over disposable real incomes, where they expect that households will experience the second largest fall of them on record. Exacerbating this will be the next rise in the energy price cap which is expected to rise again 40% in October, pushing further pressure the cost of living, the Bank warned. Given the rising inflation, Markets now expect rates to hit around 2.25% by the end of the year and a further tapering of the balance sheet.

Following the rate hike, HSBC, TSB and Santander were quick to increase the rates on variable rate mortgages, roughly adding £50 a month to the cost of a typical £250,000 loan.

The BoE previously forecast that they expect inflation to rise to around 8% in April, while noting that there was a possibility of it climbing further. More generally, there are also fears about the health of the UK economy going forward from organisations such as the IMF and World Bank, with the economy expected to have the second lowest level of growth amongst the G20 for 2023, behind Russia.

The Guardian has more:

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US Equities
Following the Fed’s 50bp rate hike on Wednesday evening, equities took a slide with the tech heavy Nasdaq falling 5% yesterday, marking the greatest fall since 2020. This signalled a difference to Wednesday’s trading session when investors speculated on Powell’s rhetoric that the prospect of a 75bp was not on the cards – which subsequently sent equities rising with the S&P recording its best session since May 2020. Nevertheless, The S&P 500 index fell a considerable 3.5% yesterday with 95% of stocks finishing the session lower than when they started. Notable declines in the US included Amazon which fell 7.6%, Tesla which fell 8.3% and Apple which fell 5.6%.

Bloomberg has more:

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Non-Farm Payrolls
This afternoon sees Non-Farm Payrolls released, where the general market consensus is expecting a print of 391,000 new jobs – a slight decrease from April’s print of 431,000.  Earlier in the week, Data from America indicated that 4.5m workers in America left their jobs in March – which represented a new record for the US labour market. The figures also indicate that there were some 11.5m jobs vacancies in March meaning that there was an average of 1.9 jobs per unemployed worker in the States – a substantial increase from the pandemic where the figure stood at 1.2. Behind these data points is what analysts and commentators are calling ‘the Great Resignation’ which describes how many workers (particularly low-income) are jumping between jobs in search of higher wages. Indeed, just last month data from Gartner suggested that over 70% technology workers were seeking to find a new employer – with factors such as employee benefits and work-life balance becoming more salient considerations when looking for new work. This dynamic of a high level of job vacancies and an unemployment level of 3.6% means that the US labour market is edging closer to what economists consider to be ‘full employment’ – which will likely lead to higher wages as employers compete for workers in a tight market, exacerbating inflation. As such the US government announced yesterday that immigrant work visas which were expiring or expired would be extended 1.5 years.

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Local Elections
Following the electorate heading to the polls yesterday for the local elections, The Conservative’s appeared to have lost considerable ground in London, which defending many of their seats elsewhere.  Some notable results include Labour winning Wandsworth Council – which has been blue since 1978, and Westminster Council, which the Conservative have held since 1964. Speaking on the Today Program John Mallinson, the Conservative leader in Carlisle stated that the PM “bears a lot of the responsibility” for what he called the weak results. Despite Labour only making some marginal gains out of London, Sir Kier called it a “big turning point” for the party, suggesting that it represented a positive sign ahead of the general election in 2025. Elsewhere, the Lib Dems have so far finished up 57 council seats – the highest of any party thus far.

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Have a great day.

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