Written by Millan Chauhan.
Last week, the US Bureau of Labour Statistics announced that US CPI decelerated to 8.3% which was above estimates of 8.1%. Estimates had predicted a sharper slow-down in the level of inflation and the market reacted negatively to this news with the S&P 500 closing the week down -3.5% in GBP terms. With inflation still persistent and slowing down less than expected, this has increased estimates of a full 100 basis points rise in interest rates. Markets are expecting either a hike of 75 basis points or 100 basis points, which would be the largest rate hike in 40 years and would move the target range to between 3.0% and 3.25%. With further hikes expected, we are on track to see rates reach 4.0% by the end of the year. The Federal Reserve is expected to make its decision on Wednesday evening.
The Bank of England Monetary Policy Committee will make an interest rate decision on Thursday, as inflation came in at 9.9% in August 2022 which was down from 10.1% in July 2022. The expectation is that the policymakers will raise rates by 50 basis points, but they could adopt a similar stance to other central banks and hike more aggressively. The decision comes after the announcement of the Prime Minister Liz Truss’s energy pricing plan that will freeze average energy bills at £2,500 per year.
In the UK, we have observed a period of national mourning over the last 10 days following the death of Queen Elizabeth II, who reigned for 70 years and 214 days, the longest of any British monarch and the longest recorded of any female head of state in history. The state funeral of our late Queen took place in London yesterday, which was followed by a military procession to Windsor Castle where she was laid to rest in St George’s Chapel. Millions of people watched on the streets or on their televisions at home, witnessing a fitting tribute to mark Queen Elizabeth II’s final journey.