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FTSE 100 Closed Slightly Up as BoE Raised -2-

1250 GMT - U.K. gilts extend their rally as the Bank of England expects the country's economy to enter into recession. The 10-year gilt yield is trading close to 10 basis points lower at 1.832%, according to Tradeweb. "The Bank [of England] knows further rate rises make a future recession potentially deeper and longer but may see it as a price worth paying to help bring prices under control," Ed Monk, associate director for personal investing at Fidelity International, says. He adds that the BOE has a narrow path to tread with inflation now forecast to hit 13% this year, while growth is slowing. (emese.bartha@wsj.com)

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Europe Stocks Gain After BOE Decision; US to Open Flat

1248 GMT - European markets gain after the Bank of England's interest-rate rise and ahead of an expected broadly flat U.S. open. The Stoxx Europe 600 and FTSE 100 advance 0.5%, the CAC 40 adds 0.8% and the DAX climbs 1.1%. Brent crude drops 0.2% to $96.55 a barrel. IG futures data show the Dow opening at 32827, versus Wednesday's close of 32812. The BoE predicted a U.K. recession starting in 4Q this year and lasting through 2023, Validus Risk Management says. "With [foreign minister] Liz Truss heavy favorite to take the Tory leadership, she may find the position a poisoned chalice as she takes the wheel just as the U.K. enters its worst recession in over a decade," Validus's Shane O'Neill writes. (philip.waller@wsj.com)

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UK Labor Supply Issues Are Key Factor in BOE's High Inflation Forecasts

1245 GMT - The Bank of England's expectations for inflation to peak at just over 13% in the fourth quarter is driven by higher energy prices but labor supply issues are also having an impact, JP Morgan Asset Management says. Tight labor markets are driving robust wage growth, and fears that these wage pressures may prove persistent is a clear motivation for the BOE's decision to raise interest rates by a larger 50 basis points to 1.75% on Thursday, JP Morgan market strategist Hugh Gimber says in a note. "All in all, with the Bank faced by an unenviable set of circumstances, a 50 basis point hike appears the appropriate course for the economy, despite the risks to the growth outlook." (renae.dyer@wsj.com)

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BOE's Pessimistic Forecasts Overshadow Big Rate Rise for Investors

1239 GMT - The Bank of England's significantly greater pessimism surrounding the outlook for the economy is a bigger focus for investors than its expected decision to raise interest rates by a chunky 50 basis points, causing sterling and long-dated gilt yields to fall, says Shane O'Neill, head of interest rates at Validus Risk Management. "The BoE has become significantly more pessimistic about the state of the economy, predicting a recession that starts in Q4 this year and lasts through 2023. Not just a technical recession but...the worst performance for the economy since the global financial crash should it come to pass," he says in a note. (jessica.fleetham@wsj.com)

 

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(END) Dow Jones Newswires

August 04, 2022 12:44 ET (16:44 GMT)

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