Last week was a busy week for the major central banks, as the European Central Bank (ECB), the US Federal Reserve (Fed) and the Bank of England (BoE) all hiked their respective key interest rates.
As widely anticipated, on Thursday the ECB raised interest rates by half a percentage point to three per cent, as concerns mount that inflation will remain high despite the recent fall in energy prices. Thursday’s hike was in line with what the bank had projected in December and with market expectations.
One the same day, the BoE’s rate-setting Monetary Policy Committee also decided to raise its benchmark interest rate by half a percentage point to four per cent, its 10th consecutive increase. The move was also broadly expected. The bank signaled however, that inflation had probably peaked.
The Fed also raised interest rates but by a lesser quarter percentage point on Wednesday, its eighth increase in less than a year, as the central bank continues to battle inflation. The Fed’s move was widely anticipated and marked the second time in a row that it slowed its increases, bringing its benchmark interest rate to a range of 4.5-4.75 per cent.
Separately in the UK, approvals for home loans fell to the lowest level in two years, as higher interest rates discouraged buyers, fresh data published by the BoE show.
The bank said that 46,075 new loans for house purchases were approved in November, representing a reduction from the 58,997 the month before and the least since June 2020 when the country was in lockdown. Economists had expected 53,000 approvals.
The sharp drop underlined the turmoil in the UK housing market, as a result of the ‘mini’ Budget in late September of then-prime minister Liz Truss, which prompted some lenders to withdraw home loans. The figure was well below the 55,000 forecast by economists.
Finally, in Italy, the economy shrank marginally in the fourth quarter of 2022, amid weaker domestic demand and lackluster industrial and farm sector performance, initial data from the country’s statistics office Istat showed on Tuesday.
Italy’s economy shrank by 0.1 per cent compared to the previous quarter, triggering recession fears. On a year-on-year basis, the eurozone’s third largest economy grew by 1.7 per cent, Istat said.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).