Written by Millan Chauhan.

Last week in the US, the Federal Reserve announced a 0.25% increase in interest rates which was in line with some expectations.  This was despite suggestions that the Federal Reserve would pause its tightening cycle amid the banking crisis which has seen the collapse of several regional US banks including Silicon Valley Bank, Signature Bank and Silvergate Bank. The European Central Bank (ECB) also moved ahead with a 0.5% interest rate rise at a point where UBS was agreeing to buy-out its Swiss rival Credit Suisse in an emergency deal aimed to stabilise financial markets. UBS has agreed to buy Credit Suisse at 60% less than its previous week’s market value.

The Office for National Statistics announced that the UK Inflation rate unexpectedly increased to 10.4% in the 12 months leading to February 2023 which was 0.5% above expectations. Inflation had been slowing down over the last three months; however, the latest inflation figure has interrupted this trend and was largely driven by upward pressure from the rising costs of vegetables/salads which was caused by shortages and bad weather. Food prices during the month of February rose 18.2% which is the largest increase since the 1970s.

Following the UK inflation data announcement last Wednesday and the banking crisis that has unfolded during March, the Bank of England also raised interest rates by 0.25% which was in line with expectations. Interestingly, out of the nine voting members within the Bank of England’s Monetary Policy Committee, two voted to keep rates unchanged but seven voted to hike rates which was identical to February’s meeting.

UK interest rates now sit at 4.25% as the Bank of England continues to seek to slow down inflation levels towards target levels of 2%. Whilst another interest rate rise given the banking crisis may appear surprising to some, the Bank of England had been raising interest rates in a series of 0.50% and 0.75% instalments since mid-2022 with the latest rate rise being the smallest rate rise for 9 months and could signal that it is slowing the aggression of its hikes.

As ever, diversification is paramount within a portfolio when navigating periods of market stress and volatility which often present new opportunities.

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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 27th March 2023.
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