US and UK Interest Rates Up and Markets Up

The Federal Reserve in the USA increased central bank rates by 0.25% pa to a range of 4.25% pa and 4.75% pa with effect from today as inflation has fallen back to 6.5% pa from 7.1% pa further demonstrating that the Feds tougher stance than Europe on interest rates has proved to be the correct decision.

At 12 noon today, the Bank of England increased central bank rates by 0.5% pa to 4.0% pa from 3.5% pa following only small inflation falls to 10.5% pa in December from 10.70% pa in November.  Latest UK inflation figures are not due until 7am on 15^th February 2023

The European Central Bank increased rates by 0.5% pa yet again from 3.0% pa to 2.5% pa from 8^th February ahead of forecast inflation figures at remaining unchanged at 8.5% pa and due mid February.

Consumers

• Savers can look forward to more interest on their deposit savings.
• Borrowers and landlords will again 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

The above clearly demonstrates that UK and EU central banks should have taken tougher action earlier on interest rates to get us to falling inflation quicker, as the US did, and kickstarting our economies.  All central banks are forecasting falls in inflation in late 2023 and a marginal uptick in economic output in 2024.

It is 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 reacted accordingly with markets falling back but now the expectation is for inflation to fall back and interest rates increases to slow meaning markets are on the up hitting new records, but we still suggest "the ball is bouncing and will continue to do so for 12 months or so".