UK100 Weighed by Another BoE Hike

UK100 Analysis

The Bank of England tightened monetary policy further on Thursday, now having entered "restrictive" territory ^[1]. That was the fourteenth consecutive hike that brought rates to 5.25% and the highest since 2008. Although the last CPI report showed some encouraging signs, policymakers do not expect inflation to fall below the 2% target before Q2 2025, according to the updated forecasts. What's more, these new projections are conditioned on the bank rate peaking at 6%.

UK100 was already having a bad week and fell in the aftermath of the BoE decision, ending the week with losses. Prospects of more hikes ahead keep the 2023 lows in the spotlight (7,202), but strong catalyst would be required for a test.

The BoE though came down to a small 0.25% increase, following June's reacceleration in the pace of tightening and the bank's communication gave a feeling the end may be close. UK100 reacted higher right after the decision and finds some support today. This can give it the chance to push for the descending trend line for the record highs (at around 7,220), but does not inspire confidence further gains towards 7,933 amd the upside looks unfriendly.

UK100 is having a somewhat mixed year so far and the lack of direction may persist, as the global monetary policy landscape has entered an uncertain phase. The Bank of England is at the epicenter, with its typically non-committal stance. It once again offered no forward guidance, but with inflation still far from target and a strong labor market, more tightening is likely in store. On the other hand, there are signs of progress, while rising mortgages and recession fears may create some caution to BoE officials.