UK100 Pulls Back from Key Tech after the BoE Hold Boost

UK100 Analysis

The Bank of England kept rates at 5.25%, with three members voting for a 25 bps hike. This was the second hold in a row, as officials believe inflation will "continue to fall sharply" and move below the 5% mark within the year. ^[1]

However, officials raised their CPI forecast for the next two years and expect inflation to take longer to return below the 2% target. This is now projected to occur in Q4 2025, from Q2 2025 previously. So there is probably some wishful thinking here and they may need to tighten further.

On the other hand, policymakers definitely have reasons to want to stay on the sidelines, since further hikes risk sparking a borrowing crisis and sending the economy back to a recession. Treasury yields have soared this year and borrowing costs for households and business have risen, with the interest paid on new mortgages increasing further in September. The BoE lowered its GDP forecasts, now seeing the economy flat lining in 2024. Adding to the hopes that the terminal rate may have been reached, these projections are conditioned on interest rates staying at around current levels (5.3%).

UK100 rose after BoE's hold and heads towards the conclusion of a profitable week and prospects of peak rates can support it. However, it will need fresh catalyst to further its advance and look towards 7,758.

The monetary policy remains uncertain and Governor Bailey kept more tightening in play during his press conference, stressing that "there is absolutely no room for complacency" ^[2]. Moreover, there is not much to cheer from the new GDP forecast.

UK100 slips today after hitting the EMA200 and the daily Ichimoku Cloud roadblocks, below which the bearish bias is intact. As such, risk of new 2023 lows (7,202) does not go away, although sustained weakness does not look easy given the shift in monetary outlook.