Treasury Market Commentary –

BoE governor warns recession is 'highly likely'

A weekly economic update from our Treasury team.

Published

9th September 2022

Category

Macro Commentary

A significant week in UK politics as the new prime minister takes office, with the market weighing how the new energy support package will affect the inflation and growth outlook, and in turn the future path of interest rates. The government estimates the policy will reduce the peak rate of inflation by 5%. There are, however, huge concerns over the funding risks, and further increasing the deficit.

The Bank of England meet next week, and the market is split on whether they will raise rates by a further 0.50%, or by an unprecedented 0.75%. Governor Bailey warned again this week that recession is now highly likely, with longer term yields easing back from their recent record highs.

The European Central Bank raised rates by 0.75% and said rates would rise further in the months ahead, despite also slashing their growth forecasts. Russian restrictions on gas supplies will continue to weigh on the economy and is a real concern as we move towards the winter months.

In the US, the Fed also seems likely to hike by another 0.75% later this month, underpinning the dominant dollar.

Market volatility remains at extreme levels on the hugely uncertain outlook, with the global economy facing the unprecedented challenges of surging inflation, rising interest rates, war in Ukraine, lockdowns in China and the ongoing supply chain issues.

On the exchanges, dollar strength remains the key driver on its favourable fundamentals, with sterling dropping below 1.1500, to its lowest level in 37 years where it has found a base for now. GBP/EUR has also dropped to 1.1500, its lowest level since the pandemic outbreak in early 2020.

GBP/USD – 1-year chart

Week Ahead

Date

Release

Last

Expected*

12/9/22

UK Manufacturing Prod. YoY

1.3%

n/a

12/9/22

UK Industrial Prod. YoY

2.4%

n/a

13/9/22

UK Average Weekly Earns. 3M/YoY

5.1%

n/a

13/9/22

UK Unemployment Rate

3.8%

n/a

14/9/22

UK CPI YoY

10.1%

n/a

14/9/22

UK RPI YoY

12.3%

n/a

15/9/22

UK Bank of England Bank Rate

1.75%

2.25%

16/9/22

UK Retail Sales YoY

-3.4%

n/a

*Bloomberg survey / Not available

Foreign Exchange

Currency

Last

Currency

Last

GBP/USD

1.1620

USD/JPY

142.30

GBP/EUR

1.1510

AUD/USD

0.6850

EUR/USD

1.0100

USD/CHF

0.9590

GBP/AED

4.2680

XAU/USD

1726

Equity Indices

Indices

Previous Close

YTD % Change

FTSE 100

7262

-1.66%

S&P

4006

-15.95%

EUROSTOXX

3512

-18.29%

UK Benchmark Rates

Swap Mid (SONIA)

 

2-year

+3.89%

5-year

+3.52%


View Arbuthnot Latham’s Private and Commercial deposit rates.

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Weekly

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