In a move that surprised markets today, the Bank of England’s Monetary Policy Committee (MPC) voted 8 to 1 to raise interest rates to 0.25%. Head of Investments at Interactive Investor Victoria Scholar commented: âTraders were caught off guard by the unexpected rise, pushing the pound and the FTSE 100 up sharply. The banking sector in particular seized an offer, shares of Barclays and Lloyds rising more than four percent. “Meanwhile, the ECB left rates unchanged, with its benchmark refinancing rate remaining at a historically low level of zero percent.
The pound is now trading at 1.18 per euro, down from 1.17 earlier this morning.
The FTSE 100 rose just under one percent.
Portfolio manager at Quilter Investors, Paul Craig commented: âAlthough inflation has reached record highs for the bloc, ECB board members will be most concerned about the virus outbreak and the deterioration economy, especially in Germany.
The German economy has been struggling in recent times with supply chain issues causing major problems for many of its industries, with the auto industry particularly hard hit.
The ECB currently forecasts that inflation will reach 3.2% in 2022 before falling to 1.8% in 2023.
Speaking at a press conference following the announcement, ECB President Christine Lagarde said energy prices are expected to stabilize next year and that pressure from energy chains Global supplies are also expected to weaken.
Although interest rates will remain unchanged, the ECB has nonetheless reduced its level of stimulus via quantitative easing.
Mr Craig commented: “If fears about the virus subside, 2022 is shaping up to be a decent year for the bloc economically and, as such, it is in a good position to start cutting back on support. extraordinary.”
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Like the eurozone, the UK is also suffering from spike in inflation, with the Bank of England revising its forecast to a peak of six percent early next year.
It is already running at 5.1%.
The Bank is under increasing pressure to act with the International Monetary Fund this week, warning it against “inaction bias.”
Speaking to Express.co.uk, former Bank of England member Andrew Sentance warned that today’s hike may not be enough to bring inflation down, suggesting that a rate going up to 2% next year might be needed.