GBP AUD Tests April Lows After BoE Rate Hike

GBP AUD Tests April Lows After BoE Rate Hike

The GBP AUD exchange rate was sharply lower by -0.75% as the Bank of England (BoE) raised interest rates to 1%. That was expected by many analysts, but the warning of 10% inflation and steeper energy bills put a dent in the growth outlook for the UK. The UK is now set to go into reverse in the fourth quarter of the year and be negative for 2023.

The GBP to AUD traded at the April lows of 1.7175 and sterling is looking weaker as the recent rally has unwound.

Bank of England hikes rates with members looking for more

The Bank of England has raised its key interest rate to 1% as many analysts had expected, but three members in the voting committee actually wanted to see a move to 1.25%.

Even worse news for the economy was a warning of inflation rising to 10% and energy bills set to soar again in October.

According to the BoE, real household disposable income and real post-tax labour income, will both fall sharply this year as energy price rises feed into the system. That will put further strain on households and will see further pressure heaped on the government to take action.

The bank also forecast that unemployment would begin to climb again, with the rate rising to 5.5% by the middle of 2025. The Bank slashed its forecast for gross domestic product growth next year from 1.25% to -0.25%, which is the closest that they come to forecasting a recession.

Andrew Bailey, the BoE governor, said the predicted slowdown in economic growth mainly reflects the “significant adverse impact” of sharp rises in global energy and goods prices on real incomes.

Scott Morrison channels Harry Potter on costs

Australian PM Scott Morrison talked Harry Potter on Wednesday as he continued on the campaign trail.

“You can’t run the economy like Harry Potter,” Morrison said, in response to criticism from Labor.

“I don’t believe a have a magic pen that makes wages go up or prices go down. Anthony Albanese is walking around in this election pretending that he has some special magical powers to make wages go up and costs go down and you don’t,” he said.

Anthony Albanese has been using the inflationary pressures and this week’s central bank rate hike in Australia to try and win votes ahead of the May 21 election.

The RBA increased rates for the first time in 11 years to 0.35% in an attempt to cool inflation.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up,” the bank’s governor said.

“Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

Economist Pau Ryan said:

“While this increase in rates was small, it signals the start of a series of interest rate rises before the end of 2022. This will weigh on housing price growth, which has clearly slowed in anticipation of these higher borrowing costs”.