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ARTICLE · 09 AUGUST 2023

She Cannae Take Much More, Captain!

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Yesterday's rate decision – a 25bps increase – was welcomed by markets. Not because the increase will not be painful but because a 50bps increase would have signalled that reversing inflation is far from done.

United KingdomInsolvency/Bankruptcy/Re-Structuring
James Worsnip
James Worsnip
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Yesterday's rate decision – a 25bps increase – was welcomed by markets. Not because the increase will not be painful but because a 50bps increase would have signalled that reversing inflation is far from done.

In December 2021 – just 20 months ago – the Bank rate was 0.1%; yesterday's increase took that rate to 5.25%. Although the level of interest rates is not high by historical standards, the sharp transition is something we have not witnessed since the late 80s.

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During the protracted period of low rates, corporates and households took on more debt and market participants searched for yield in higher-risk markets. Now, the worm has turned and it has done so quickly and in an extreme way. With Andrew Bailey stressing that the markets should expect the Bank to "keep this stance of policy", we are likely to see high rates for some time.

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