This week more doubt has been cast on the widely held view that central banks are about to bring an end to interest rate hikes. The decline in the UK’s headline rate of inflation was not as big as expected as food, housing and services continue to rise, leaving the Bank of England’s recent upward revision to its inflation forecast in doubt. The rise in core inflation increases the chance that rates in the UK will continue to rise in the very short term. The tone from the US central bank’s most recent interest rate meeting also leaves the door to further rate hikes wide open.
Short-term expectations, including the threat of default on US government debt, have driven yields significantly higher, with the UK not far from the levels that helped end Liz Truss’s term in Downing Street. However, this also raises the chance of a relatively swift reversal and for rates to start coming down in the not too distant future. With central banks increasingly concerned about doing too little to tame inflation, the risk is that rates are pushed too high too quickly until something significant breaks.
Read what the team at Financial Express consider to be significant over the current week.