Bank of England base rate change

Commenting on the 0.25% base rate change announced by the Bank of England, Chris Arcari, Head of Capital Markets says:

“US equity markets surged yesterday as investors were buoyed by potential tax cuts and a lighter-touch approach to regulation under a Trump presidency. Treasury yield also rose sharply, adding to October's rise, as both stronger near-term growth and potential inflationary pressures from trade tariffs and a crackdown on migration, led to expectations that interest rates might stay higher for longer. US bank stocks, in particular, rose strongly on the back of higher-for-longer rate expectations and looser regulations, with the oil and gas sector also benefitted. The Japanese yen, euro, Mexican peso all fell. The Japanese equity market benefitted from yen weakness while European markets sagged in anticipation of more difficult trading conditions ahead for some of the region’s largest manufacturers, with German autos particularly exposed. 

“Despite the larger than expected rise in net spending unveiled in the autumn budget, and the OBR's forecast of higher near-term inflation as a result, the Bank of England (BoE) has today lowered rates by 0.25% p.a. – only the second reduction this year. Headline inflation came in at a below-target pace of 1.7% year-on-year in September and while still elevated, service sector and wage inflation are coming down more quickly than the BoE anticipated in their previous monetary policy report. This opened the door for the BoE to make today’s change and lower interest rates, while still maintaining a relatively restrictive policy stance. The front-loaded nature of the spending and the OBR's forecast impact on near-term growth and inflation has seen the market shift to expect a slower pace of rate cuts from the Bank of England.”