Market report

Bank faces rates dilemma over mixed economy data

Bank of England
The Bank of England’s next move is less certain (pic: Terry Murden)

Bank of England interest rate setters face a growing dilemma as inflation and the potential for recession threaten to conflate and make this week’s decision a close one to call.

UK growth slid in July, though the Treasury said strikes and wet weather were to blame. Even so, worries over recession have re-emerged as Insolvencies are above pre-pandemic levels and unemployment has accelerated much more quickly than expected.

A deciding factor may come 24 hours before the Bank’s monetary policy committee decides whether to hike the interest rate for the 15th consecutive month, taking it to 5.5%.

Inflation figures from the Office for National Statistics on Wednesday are expected to show the cost of living has ticked back up to 7% in August from 6.8% in July because of rising petrol prices.

Financial markets do believe that a further rise in the base rate will be the last for this year and that rates will start to fall next year, though perhaps not until the second half.

On the stock market, the mood among investors was brightened by better news from China and the European Central Bank signalling an end to its interest rate rising cycle.

The FTSE 100 closed 38.30 points, or 0.5% higher at 7,711.38, its best level in more than three months.

Higher industrial output in China saw metal prices rise, benefiting miners such as Endeavour Mining and Fresnillo, which advanced 77p to 1658p and 3.5p to 129.75p respectively.

Shares in power group Drax slumped after the National Audit Office said it would issue a report about the government’s biomass strategy. The FTSE 250 group, which runs the country’s biggest power station and has received billions of pounds in government incentives for burning wood pellets to produce electricity, saw its shares close 56.75p lower at 497.75p.

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