Home WORLD EUROPA London Stock Exchange plunges as UK raises interest rate further

London Stock Exchange plunges as UK raises interest rate further

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The BoE did not decide to raise its rates by more than 0.25 points, unlike the US Federal Reserve, but it will be particularly attentive to indications of persistent inflationary pressures and will respond forcefully if necessaryshe promises in the minutes of her meeting.

Forecasts for growth and inflation were not reviewed in detail at this meeting, but as inflation climbed to 9% in April, a 40-year high, the BoE now expects a peak at%”,”text”:”more than 11%”}}”>more than 11% over one year in October, when the regulated ceiling for electricity prices will be revised upwards.

The London Stock Exchange plunged 3% on Thursday, investors worried about the British economy.

Slower growth in the UK

Like the United States or the euro zone, prices are rising in the United Kingdom due to the disruption of production chains caused by the COVID-19 pandemic and the surge in energy prices since the start of the Russian invasion. from Ukraine.

But the country, which launched a rate hike at the end of 2021, is also facing a slowdown in growth, with a second straight monthly contraction in economic activity in April.

The BoE now forecasts a 0.3% fall in gross domestic product (GDP) in the second quarter, where it still forecast a 0.1% increase in May, a decline that comes on top of a contraction already forecast for the last three months of the year.

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Sluggish growth therefore prevents BoE to be more determined in the face of soaring prices, unlike the US Federal Reserve (Fed), which raised its key rate by three quarters of a point on Wednesday, a first since 1994.

The European Central Bank (ECB) held an exceptional meeting on the same day to try to reassure the European debt market while maintaining its rate hike scheduled for July.

Core inflation, which excludes energy and food prices, is higher in the United Kingdom than in the euro zone or the United Statesrecognizes the BoE.

Difficulties in recruiting remain high and so does the demand for workersshe adds, describing the labor market as always tenseeven if the unemployment rate rose slightly in the United Kingdom over the three months to the end of April, to 3.8%.

The economic situation is already reflected in consumer spending, which is more cautious. The low-cost online clothing sales site Boohoo fell by 13% and its rival Asos by 29% after quarterly sales which crumbled when they had jumped during the pandemic.

Analysts divided

The United Kingdom is digesting the consequences of Brexit, which has disrupted the arrival of European workers, while the post-pandemic recovery is leading to strong demand and a wage war.

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Three of the nine members of the Monetary Policy Committee (MPC), however, voted for a rate hike of 0.5 points, as in May, to prevent the recent trend of rising wages, corporate pricing decisions and inflation expectations settles permanently.

BoE gives too much importance to the slowing economy and not enough to inflation”,”text”:”We believe that the BoE gives too much importance to the slowing economy and not enough to inflation”} }”>We think the BoE gives too much importance to the economic slowdown and not enough to inflationworries Paul Dales, an analyst at Capital Economics, who points out that the Bank promise nothingunlike the Fed, which is more specific about its rate hike plan.

Some analysts, on the contrary, welcome the measured tone of the BoE : MPC decision proves that as other central banks lose their minds, the Committee maintains a gradual approachsays Samuel Tombs, an analyst at Pantheon Macro.

A sign of observers’ ambivalence, the British pound swayed, temporarily losing more than 1% against the dollar before stabilizing on a more moderate decline.

Barometer of the gloomy expectations of analysts and forex traders for the British economy, it has melted by 10% since the start of the year.

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