Markets brace for Bank of England interest rate decision – business live

Sterling has dropped by almost a cent against the US dollar this session, after the Federal Reserve lifted US interest rates by 50 basis yesterday.

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The Fed’s hawkish warning that officials anticipate that “ongoing increases” in the Fed Funds rate will be “appropriate” has dashed hopes that the interest rate hiking cycle could end soon.

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That’s strengthened the dollar, pushing the pound down to $1.233. Earlier this week it hit the highest level since June.

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Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

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Central banks are in the spotlight today as the Bank of England and the European Central Bank both set interest rates.

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Both banks are trying to fight double-digit inflation (sharply over their targets of 2%) and both are expected to raise borrowing costs by half a percentage point.

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That would take UK interest rates up to 3.5%, the highest level since October 2008, up from 3% at present, despite fears the UK is falling into recession.

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A 50 basis-point hike is punchy by historic standards, but would actually be a slowdown after the Bank of England lifted borrowing costs by three quarters of a percent last month to 3%, its biggest rise in three decades.

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After November’s meeting, the Bank hinted that interest rates wouldn’t rise as high as the markets had been pricing in.

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Today’s BoE decision comes at noon, and may not be unanimous. There are nine members of the Bank’s monetary policy committee (MPC), and they have a range of views about the risks facing the UK economy.

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Victoria Scholar, head of investment at interactive investor explains:

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“The Bank of England is expected to vote in favour of a more moderate 0.5 percentage point interest rate increase to 3.5% at its meeting today. This will immediately impact those on variable rate mortgages while those with fixed rate mortgages set to expire soon will have to refinance at higher rates.

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When the monetary policy committee last met in early November, it carried out the biggest hike in over 30 years, raising rates by 0.75 percentage points to 3% in attempt to tame the UK’s sky-high inflation and price instability.

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At today’s meeting, there are likely to be a range of opinions on policy from members of the MPC. Some hawkish members could vote for a more aggressive 75 basis point hike to help drive inflation and inflation expectations lower while some dovish members could vote for no change at all, fearing the negative impact of too much tightening at a time when the UK is heading towards a recession.

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Bank of England readies another rate hike even as recession hits https://t.co/1plYEyxIuS pic.twitter.com/yW9kihMeAM

— Reuters UK (@ReutersUK) December 15, 2022

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Yesterday, we saw that UK inflation has eased off slightly, with prices rising by 10.7% over the last year, down from 11.1% in October. That will be welcomed by the Bank, but the City doesn’t expect it will be enough to stop another rate hike today.

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The BoE has already raised rates at every meeting this year, in a tightening cycle that began last December.

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Last night the US Federal Reserve slowed its interest rate hiking cycle, by lifting its target rate by 0.5 percentage points.

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But, Fed chair Jerome Powell struck a hawkish tone too, telling reporters that the central bank wants to see “substantially more evidence” that inflation is abating. Fed officials voted to hike rates despite new forecasts showing that the US economy will barely grow next year, while unemployment increases.

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USD 🚀 because Fed median 2023 rate forecast > 5.0%

Fed sees weaker growth, higher unemployment and higher inflation in 2023

+50bp Hike to 4.25%-4.5% range
• GDP ⬆️ 2022 ⬇️ 2023 ⬇️ 2024
• Unemployment ⬇️ 2022 ⬆️ 2023 ⬆️ 2024
• Inflation ⬆️ 2022 ⬆️ 2023 ⬆️ 2024

— Kathy Lien (@katihylinefx) December 15, 2022

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The Fed's December Dot Plot pic.twitter.com/dcKUSMgLdr

— Invest (@Invest_ID01) December 15, 2022

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Norway’s Norges Bank, and Switzerland’s SNB, are also setting interest rates this morning.

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The agenda

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8.30am GMT: Swiss National Bank interest rate decision

9am GMT: Norges Bank interest rate decision

9.30am GMT: Latest weekly ‘business insights’ from the UK’s ONS

12pm GMT: Bank of England interest rate decision

1.15pm GMT: European Central Bank interest rate decision

1.30pm GMT: US retail sales for November

1.30pm GMT: US weekly jobless figures

1.45pm GMT: ECB press conference

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