The noise
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The Bank of England has raised UK interest rates to 5.25% from 5% on Thursday, the 14th rates rise in a row. Reaching a 15-year high, the BoE Governor Andrew Bailey said they needed to be “absolutely sure” that inflation fell all the way back to the 2% target, and that interest rates would likely stay higher for longer in an effort to battle soaring price rises.
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US Treasury yields surged to a nine-month high, following the US government announcing that it would increase its borrowing in the coming months. Issuance of long-term debt will increase this quarter, as they look to fill the growing gap between tax revenue and government spending. Yields were also boosted by stronger than expected private payrolls data on Wednesday. This strengthened the thesis that the US economy may be able to achieve a “soft landing”, which would erode the chances of interest rates and borrowing costs declining sharply any time soon.
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A group of investors including TotalEnergies and Baker Hughes have signed preliminary agreements to invest in Zhero Europe. They are looking to develop large scale renewable energy projects in Europe and Africa, in a bid to accelerate the green energy transition in high demand areas. Zhero Europe plan to deploy the investment into renewable power generation, power interconnections and green molecules.
The numbers
The nuance
Much like last week’s Federal Reserve move to bump rates up by 25 basis points, the Bank of England’s identical move should not have come as much of a surprise. The decision will mean higher mortgage rates and loan payments but should also mean higher savings rates. The BoE clearly stating that it will “ensure the bank rate is sufficiently restrictive for sufficiently long” indicates that rates could plateau above 5% for the next 12 – 18 months.
Many market observers now believe rates are close to their peak in this cycle of 14 rises, with many anticipating one or two more hikes before the end of the year. Between now and the next meeting at the end of September, there will be two sets each of labour market data and inflation data. These four releases will be key to determining how the Monetary Policy Committee will proceed.
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