Inflation remains the wider concern

Click here for the video brief

Bank of England rate rates by 0.25%

The MPC voted to raise interest rates by 0.25%. The vote was 8-1 and Sir Jon Cunliffe, Deputy Governor for Financial Stability, was the only member to vote against it.?

Bank of England inflation forecasts have already been raised. The peak was forecasted at 7.25% last month, but this month this has been revised and is now expected to a peak of 8%. Meanwhile, unofficial forecasts from the market suggest a peak of 10%.

Governor Bailey blamed higher energy prices for the rise in inflation expectations.?Inflation hit 5.6% in February and is forecast at 6% or 6.5% this month and Bailey believes that any continued increase will be largely dependent on energy prices. As such, Market expectations for a fourth consecutive hike are already growing as a negotiated settlement in Ukraine still looks unlikely.

In the market, Sterling initially reacted poorly to the news, but we recovered later in the day.

US economic activity continues to improve

The US rate hike earlier this week was accompanied by continuing improvement in economic activity.

Powell suggested that nothing is off the table as the effort to control prices begins in earnest. He is concerned that the rate hikes alone will not bring inflation under control and fears that headline inflation will hit 10% next month.

Goldman Sachs issued a warning about recession in the U.S. and Europe and they raised concerns of stagflation, fearing that falling activity with rising inflation could already be a factor.

In the market, the dollar index continued its retreat yesterday.?

Eurozone inflation is a growing concern

Eurozone inflation grew by a record amount in February, reaching 5.9%. This was widely expected, but it keeps the pressure on the ECB to act. As inflation grew by just 0.1% from 5.8% to 5.9% last month, this will give Lagarde a little breathing space, but calls remain for the Central Bank to act more quickly.

The conflict in Ukraine is influencing both growth and inflation, and for now ECB President Christine Lagarde is still more closely concerned about economic activity.

The ECB’s relatively relaxed attitude to inflation runs contrary to the UK and the US, where interest rates are rising. This will increase the level of divergence in monetary policy and add downward pressure on the single currency.