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Wednesday, May 25, 2022

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The Bank of England has found itself caught between a rock and a hard place

The Bank of England has made it’s concerns public as the world undergoes a little bit of a transformation.

Giles Coghlan, Chief Analyst at HYCM said:
“The Bank of England (BoE) has found itself caught between a rock and a hard place. The markets had largely priced in today’s dovish interest rate hike, which marks the third consecutive increase from BoE policymakers and has lifted the base rate to its pre-pandemic level. That said, the move has also come accompanied by some significant concerns about the state of the wider economy. Undoubtedly, Russia’s invasion of Ukraine is driving the larger inflation narrative – the conflict has exacerbated energy price spikes and is weighing heavily on the outlook for GDP growth. In Whitehall, there are even whisperings that the dreaded ‘R’ word might be on the cards.

“While the prospect of stagflation is more likely, the central bank now recognises that modest tightening may still be set to come in further months, albeit with the risk of slowing growth by hiking too quickly. With markets pricing in 6 hikes in total this year, today’s decision might give the BoE some room for pause so that it can place more emphasis on this deteriorating growth backdrop. With medium term inflation risks still anchored this should be taken as a dovish shift from the BoE. EURGBP should find dip buyers over the medium term now.”

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