BOEs Pill: BOE raise rates last week because too much momentum in the economy

BOE's Pill:

• BOE raise rates last week because we thought there was too much momentum in economy
• Too much demand for inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term to return to 2%
• Trying to keep spending power will risk higher and persistent inflation
• Sees risk of inflation getting stuck at 4 – 5%. We need to avoid this.
• Risk is a 2nd round effect keeps inflation above the target
• The challenge is finding the right balance on rates

Last week:

• The Bank of England Bank of England The Bank of England (BoE) functions as the United Kingdom’s central bank and is one of the key drivers of monetary policy in Europe. As one of the world’s oldest central banks and established in 1694, the BoE is owned by the British government. Its central mandate involves maintaining and targeting interest rates while using other tools to help either stimulate or contract the economy. Moreover, the BoE is responsible for producing the UK’s bank notes as well as supervising key bank payment sy The Bank of England (BoE) functions as the United Kingdom’s central bank and is one of the key drivers of monetary policy in Europe. As one of the world’s oldest central banks and established in 1694, the BoE is owned by the British government. Its central mandate involves maintaining and targeting interest rates while using other tools to help either stimulate or contract the economy. Moreover, the BoE is responsible for producing the UK’s bank notes as well as supervising key bank payment sy Read this Term (BoE) increased its key interest rate to 4.5% from 4.25%, marking the 12th consecutive rate hike.
• Governor Andrew Bailey stated that the BoE will continue to curb the highest inflation of any major economy, despite inflation falling more slowly than expected due to persistent rises in food prices and stronger wage growth.
• The central bank revised its growth projections, no longer predicting a recession.
• Policymakers voted 7-2 in favor of the increase, aligning with economists' expectations.
• Governor Bailey hinted that the BoE might be nearing the end of its tightening cycle, but remained uncertain.
• The BoE forecasts inflation to drop to 5.1% by the end of this year from 10.1% in March, but does not predict inflation returning to its 2% target until early 2025.
• The BoE is concerned about recent strong headline pay growth turning into a long-lasting problem for the economy.
• The BoE forecast the economy to grow 0.25% this year, up from its February prediction of a 0.5% contraction.
• The central bank now no longer predicts a recession this year, expecting the economy to be 2.25% larger in three years' time.
• The BoE estimated that only around a third of the total impact of its past interest rate hikes has so far fed through to households and businesses.

The financial markets expect two more rate increases from the BoE. Investors have been pricing in a peak of almost 5% in the autumn.

The BoE was the first major central bank to start raising borrowing costs in December 2021 amid rising inflation.

Looking at the 4-hour chart below, the price is up testing its 100-bar moving average at 1.25244. A move above would have traders looking toward a key swing area between 1.2536 and 1.25474.