investingLive European news wrap: BoE raises bank rate to 4.00% as expected

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Markets:

  • WTI crude oil up +1.50% to $89.50
  • Gold up +1.41% to $4,116
  • CAD leads, EUR lags
  • S&P 500 up +0.03% to 7723
  • US 10y Treasury yield flat at 4.89%
  • Bitcoin down -0.96% to $79,624

The main highlight of the session was the Bank of England monetary policy decision. The central bank raised interest rates by 25 bps to 4.00%, in an 8-1 vote, with one member preferring a larger 50 bps increase, as concerns grow over the inflationary impact of the Middle East conflict and rising energy prices. UK CPI inflation reached 3.5% in September and is expected to approach 5% by mid-2027. While the BoE sees limited evidence so far of second-round effects on wages and broader prices, stronger-than-expected economic activity and building inflationary pressures justified the increase. Policymakers stressed that future decisions will remain meeting-by-meeting, with close attention to wage growth, business pricing and economic slack.

The minutes highlighted a hawkish divide within the MPC, with Lombardelli, Pill and Greene signalling that further increases may be needed, while Taylor and Dhingra viewed the move mainly as insurance against worse inflation outcomes. Bailey argued that higher market rate expectations partly reflect increased risk premia rather than expectations of further tightening. The BoE raised its 2027 GDP growth forecast to 1.3%, but expects activity to weaken, while unemployment is projected to reach 5.1% in 2028.

SNB Chairman Martin Schlegel noted that there is currently no significant evidence of second-round inflationary effects and that the Swiss economy is showing initial signs of growth. He stressed that Switzerland remains highly exposed to external economic shocks, while the Swiss franc retains relatively strong safe-haven characteristics compared with other currencies.

Schlegel reiterated that the SNB would intervene if price stability were threatened, using its policy rate as the primary instrument but keeping foreign exchange interventions and other measures available if necessary. He also expressed confidence in the SNB’s monetary policy framework, noting that it has successfully maintained price stability so far this century and remains effective across a broad range of economic conditions.

ECB policymaker Zigman signalled that another interest rate increase could be on the table as soon as December, describing the possibility of a hike as relatively high. However, he cautioned that it is still too early to determine how much additional tightening may be required.

There were no other major developments as the fallout from the US midterm elections continues to drive the price action as we await further US-Iran news.

This article was written by Giuseppe Dellamotta at investinglive.com.

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