Markets bet on looming recession as businesses feel the squeeze
Markets are betting on an impending recession as businesses feel the pressure following the Bank of England rate hike
Markets are increasingly betting on a recession after the Bank of England pushed through a massive rate hike.
The increase threatens to squeeze millions of borrowers as traders gambled in the wake of the announcement that it would pave the way for further increases.
Gary Smith, a partner at asset manager Evelyn Partners, said the increase in the “big bazooka” could lead to more chaos in the mortgage market, which is already under heavy pressure.
And corporate groups also expressed concern about the impact of higher investment and performance rates on small and medium-sized businesses.
Neil Wilson, chief markets analyst at Markets.com, said the “recession surge” was an admission that the bank could not contain inflation without triggering an economic downturn.
Pressure: The latest Bank of England rate hike threatens to squeeze millions of borrowers as traders bet it would pave the way for further hikes
That fear meant that a brief spike in the pound following the interest rate announcement proved short-lived, ending three-tenths of a cent lower against the dollar at just over $1.27.
It adds to underlying investor anxiety about the UK, which is still lingering after last autumn’s mini budget and set to grow again as the uncertainty of the general election approaches.
Joe Tuckey, head of FX analysis at Argentex said: “The lag effect of further tightening could mean that UK economic data will undoubtedly deteriorate in the coming months.”
Meanwhile, yields on ten-year bonds fell further below those on two-year bonds, meaning investors are demanding higher yields on short-term government loans.
Such an ‘inverted yield curve’ is often interpreted as a warning of a recession.
The curve is the most inverted curve since 2000 and rose at its strongest pace since June 1994 during June.
Rising rates are creating additional headaches for businesses, said David Bharier of the British Chambers of Commerce.
“While inflation is still the biggest concern for companies, rising interest rates are leaving a rapidly growing number of companies with skyrocketing borrowing costs,” he said.
Martin McTague of the Federation of Small Businesses said: “A rate hike shouldn’t come as a surprise, but the size of the hike will hurt, and rate hikes aren’t a magic wand for curbing inflation.”