Interest rates

FTSE 100 Live December 16: Bank of England interest rate decision, impact on UK inflation, US Federal Reserve meeting, Boohoo warns against trading


Whether or not to raise interest rates from their pandemic 0.1% low will be revealed by the Bank of England at noon.

Yesterday’s skyrocketing inflation rate to 5.1% intensified pressure on policymakers to act, but most economists expect them to stay tight for another month in due to the economic uncertainty caused by the spread of the Omicron variant.

Counterparts at the U.S. Federal Reserve have already signaled three rate hikes next year, but Wall Street markets rose again last night despite the hawkish tone at the central bank policy meeting.

Elsewhere, online fashion retailer Boohoo lowered its profit forecast today as it blamed the disruption caused by the pandemic for driving up costs and lengthening delivery times for international customers.

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Fed progress seen as positive for stocks

The calm reaction from financial markets last night represents success for the Federal Reserve in managing expectations of a potential three rate hikes in 2022.

This does not mean, however, that investors should expect smooth developments as policymakers implement their plans to tighten monetary policy.

Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, said: “While volatility is to be expected, we believe that a still accommodating political environment, as well as strong economic and corporate fundamentals, should support a further rise in equities.

“We favor the likely winners of global growth, including energy and finance, balanced with exposure to more defensive sectors like healthcare.”

Haefele also believes inflation will slow more than the Fed expects in 2022 and that this should ease the pressure on policymakers to act.


Markets climb despite the Fed’s hawkish tone

Global markets are in the spotlight today, despite the fact that policymakers at the U.S. Federal Reserve reported three interest rate hikes in 2022.

The more hawkish tone in response to the threat of rising inflation did not scare Wall Street as the Dow Jones Industrial Average closed more than 1% higher. Japanese stocks followed the rally adding 2% and the FTSE 100 index is expected to rise 80 points to 7,250.

Attention is now turning to the meetings of the European Central Bank and the Bank of England, with the latter expected to keep rates unchanged despite the November inflation rate surging to 5.1%.

Michael Hewson, chief market analyst at CMC Markets, said: “The United States faces similar Omicron challenges to the United Kingdom, but the Fed has been able to deliver a clear and concise message, a problem with which the Bank of England has always struggled. “

He said the bank’s monetary policy committee had “bottled up” the decision to hike rates by 0.15% in November, a move that would have been easy for the market to absorb and would have allowed policymakers to fail. take no action today.

Unemployment figures have been robust since then and inflation is now close to its highest level since 1992. However, further restrictions and a slowdown in economic activity due to the Omicron variant mean that most economists believe that the Bank will continue its wait-and-see approach. .

Hewson added, “If today’s decision was based on data alone, which it ultimately should be, a rate hike wouldn’t even be up for debate. “