|2022/09/30 / Erste Group Research|
Bank of England forced to intervene on markets
Last week, the new British Prime Minister Elisabeth Truss unveiled her plan to stimulate the UK economy with significant tax cuts. In the face of high inflation rates and the Bank of England's efforts to achieve exactly the opposite, namely to cool the economy, by tightening monetary policy, this move is controversial. The financial markets have reacted by selling off the British pound, especially against the US dollar, as well as long-dated British government bonds. The Bank of England has seen a threat to financial stability from the violent movements in the bond market and has therefore announced a temporary intervention in the market for long-dated government bonds.
The recent act of sabotage, with explosions creating several leaks in the Nordstream I and Nordstream II gas pipelines, has caused a significant short-term increase in European gas prices. Although both pipelines currently play no role at all in supplying gas to Europe, this has nevertheless caused great uncertainty among market participants. Probably because of the justified concern that similar acts of sabotage could occur at other points of critical EU infrastructure. Whoever was responsible for this act of sabotage, what remains for the EU is that the uncertainty has caused energy prices to rise again, at least in the short term. This damages the European economy and increases the pressure on companies, households and ultimately the member states.
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|Author||Erste Group Research|
|Product name||Week ahead|
|Topic in focus||Macro/ Fixed income|
|Economy in focus||Eurozone, United States|
|Currency in focus||Euro, US Dollar|
|Sector in focus||-|
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