US, UK and EU Central Bank Rates All Up 0.5% and Markets Down

Yesterday, the Federal Reserve increased central bank rates by 0.5% pa to a range of 4% and 4.5% pa following inflation at 7.20% pa on Tuesday.

At 12 noon today, the Bank of England increased central bank rates by 0.5% pa to 3.5% pa following inflation at 10.70% pa yesterday.

Today at 1.15pm (2.15pm CET), the European Central Bank increased rates by 0.5% pa to 2.5% pa ahead of forecast inflation figures at 8.4% pa due to be published tomorrow.

Consumers

• Savers can look forward to more interest on their deposit savings.
• Borrowers will be looking forward with dread as the costs of servicing mortgages and other debt will rise.

Business

• Companies may not be looking forward to increased borrowing and debt servicing costs as well as it will prove more difficult to raise capital in recession with ever higher costs.

Comment

All central banks are forecasting a fall in inflation in 2023 and a marginal uptick in economic output.

We know that central banks have a role to control inflation.  It was expected, in fact a ‘given’ that in the current inflationary environment, interest rates would creep up to control inflation, but the energy crisis has acted as a catalyst for even higher inflation across all sectors.

Stock markets have reacted accordingly with markets falling back all week from their mini recovery over the last 4 weeks ahead of the bank rate announcements.

We have said it before as we say it again: "the ball is bouncing and will continue to do so for 18 months or so".