FTSE struggles after BoE hike – future movement uncertain

The British FTSE 100 index traded flat on Thursday, completely diverging from the flying Wall Street indices as investors assessed the recent Bank of England monetary policy decision.

BoE increased rates

As predicted, the BoE hiked the policy rate by 25 basis points to 4.25%, the highest since 2008. The decision to increase interest rates was 7-2, with members Tenreyro and Dhingra in opposition.

“If there were indications of more persistent pressures, then more monetary policy tightening would be necessary,” the minutes of the meeting released on Thursday stated, echoing what the BOE declared in February.

According to the statement, the central bank anticipates that inflation will decline considerably in the second quarter of 2023 while economic activity will expand modestly over the same time.

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Moreover, Governor of the Bank of England (BoE) Andrew Bailey stated, “We have already raised interest rates significantly, and we anticipate that inflation will decline relatively swiftly before summer.”

“February inflation numbers indicate that a decline in inflation is necessary,” Bailey noted. We will continue to make the necessary decisions for continued low inflation.

Concerning the recent dynamics in the banking industry, the Financial Policy Committee (FPC) emphasized that the United Kingdom’s banking system is resilient and has maintained solid capital and excellent liquidity levels.

“For the BOE, February UK CPI data have removed any flexibility they may have thought they had, and now markets are pricing in a higher terminal rate of around 4.5% as a result,” said Craig Erlam, a senior market analyst at Oanda Ltd. “This makes the language that accompanies the decision key,” he said, expecting policymakers to highlight an uncertain outlook and the need to be data-dependent.

The two key levels for the FTSE index are at the 200-day moving average (the blue line) near 7,420, followed by the recent swing lows at 7,200 As long as the index trades above them, the medium and long-term outlooks seem bullish.