KPMG comments on today’s interest rate news - August 2022

“The Bank of England increases firepower despite downside risks” says Yael Selfin, Chief Economist at KPMG UK.

“The MPC chose to hit the brakes with a 0.5 percent interest rate increase in the hope of chasing away a more persistent rise in inflation expectations. This is the first hike of this scale since 1995 and the first one since the Bank of England’s independence.

 “Although the Bank’s latest forecasts show inflation undershooting the 2 percent target at the relevant policy horizon of three years, today’s move will be seen as a message to the financial markets that the Bank does not wish to take any chances.

 “We expect two further hikes this year, in September and November, bringing the policy rate towards its equilibrium level of 2-3 percent.

“The publication of the Bank’s long-awaited strategy for reducing its balance sheet from the current level will be welcomed by the markets, as it provides clarity on its intention to reduce the stock of gilts by £80 billion over the first year.”

-Ends-

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