Home > The Bank of England hikes interest rates again, ECB unchanged as European stocks lower- Market update

The Bank of England hikes interest rates again, ECB unchanged as European stocks lower- Market update

  • The Bank of England’s rate hike is the second in two months, while the European Central Bank’s decision not to hike rates follows a similar move last December.

  • Inflation has risen to multi-decade levels in the UK and US, with Fed set to hike rates in March.

  • Stocks were lower in Europe after the BoE’s decision.

European stocks are trading lower as markets react to a second interest rate hike from the Bank of England. Investors are also keen on further monetary policy commentary from the European Central Bank.

In the stock market, the pan-European Stoxx 600 index was down 0.6%, with big losers on the day being French-based big data analytics firm Atos and Germany’s reinsurance firm Hannover Rueck at -6% and -4% respectively. On the other hand, UK giant Compass Group was up 7.8% to lead gainers.

The UK benchmark FTSE 100 was down 0.4%, while Germany’s DAX and France’s CAC had slipped 0.45 and 0.2% respectively.

Bank of England in back-to-back rates since 2004

The Bank of England on Thursday hiked interest rates for the second time in as many months, making it the first time the UK central bank had raised rates back-to-back since 2004.

The bank’s second surprise move comes amid market expectations for rate hikes in the US, with the Fed penciling in a March hike.

The BoE's decision sees interest rate go up by another 25 basis points to 0.5%, following last December’s 15 basis point hike to 0.25%.

The European Central Bank also released a monetary policy statement on Thursday, choosing not to raise interest rates after yet another meeting.

The ECB has kept refinancing rates at 0%, marginal lending at 0.25% and at -0.5% for the eurozone’s deposit facility.

The BoE’s move comes as central banks look to control spiraling inflation as they cut back on stimulus spending programs initiated during the height of the Coronavirus global pandemic in 2020.

UK’s inflation rose 5.4% year-on-year last December, reaching its highest level in 30 years, while in the US, inflation paced to a 40-year high.

The same picture is replicated across Europe, thus making the ECB’s decision to maintain the status quo on key rates raise the question of when, and not if, that holds longer.

Investors await a statement from ECB’s Christine Largade.

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