Markets on notice of more interest rate hikes to come

This week’s central bank interest rate decisions came in as expected. The Federal Reserve left rates unchanged – the first time it has opted not to hike since March 2022 – while the European Central Bank increased rates by 0.25%. The ECB maintained its aggressive attitude to tackling inflation, effectively promising another hike next month, but the Fed was a bit more aggressive than expected. US inflation is heading in the right direction but progress is slow and the jobs market remains robust. Fed members indicated that two more hikes are likely this year and Fed chair Jerome Powell signalled that rates will need to remain elevated to avoid a stop/start approach to tackling inflation.

Next week brings UK inflation data and the Bank of England’s interest rate decision. Strong employment and GDP data have convinced investors that the UK will also be more aggressive and UK gilts were dragged down again. As ever, the higher rates go, the greater the chances that something in the economy breaks. Rising mortgage costs and soaring insolvencies offer a reminder that we may not be too far from that point.

For the following stories, please click on this link*

• US: Federal reserve hits the brakes as inflation eases.
• UK: Strong jobs and GDP mean investors expect further hikes.
• Equities: UK listings have fallen dramatically since the [andemic.

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