UK Chancellor Jeremy Hunt made an announcement this week that reversed most of Prime Minister Truss’s mini-budget proposition. This announcement was intended to reestablish confidence and peace in markets after the steep GBP trade-off and rising Gilt yields.
The government’s energy support package was a special announcement that would have capped the annual household energy bill at GBP2500 for the next two years. Jerry Hunt announced that the support will remain and be more targeted until April. There are expectations for the support package removal to weigh on consumers and businesses alike, resulting in an uptick in inflation.
On a positive note, the Chancellor’s recent announcements should reduce the need for the Bank of England (BoE) 100bp hike in November. Consequently, markets are now pricing in a 66% chance of a 100bp rate hike, which was nearer to 100% before the fiscal U-turn.
A 75bp hike by the BoE could be intelligent, considering the rising rates impact the housing market and the cost of living in general. In view of these, the Bank of England has much to consider as its November meeting approaches.