Bank of England Raises Interest Rates by 25 Basis Points to 4%, US Tech Stocks Plunge

On November 6, the Bank of England raised interest rates by 25 basis points to 4% with a vote of 8 to 1, marking the first rate hike in over three years. Rising energy prices have led to a September CPI of 3.5%, and the central bank estimates that inflation could rise to 4.9% by the second quarter of 2027. This rate hike does not signify the establishment of a new tightening cycle, as policymakers are still observing whether energy costs will translate into wages and corporate pricing, while also guarding against the additional pressure on the economy from weakening demand. The Bank of England is concerned about second-round inflation effects; if energy prices remain high for an extended period, costs may be passed on to consumers, forcing the central bank to tighten further. Conversely, a deterioration in household purchasing power could exacerbate the economic slowdown. The US market is facing concerns over AI capital expenditure returns, data center regulations, and high-leverage trade liquidations, leading to a sharp decline in tech stocks and the semiconductor sector, with all sectors of the S&P 500 experiencing losses. Funds are shifting towards short-term US Treasury bonds and money market funds, the latter of which has grown to $8.016 trillion, indicating that investors are seeking increased liquidity and defensive positioning. The decline in tech stocks has reduced market bets on a rate hike by the Federal Reserve in December, reflecting that the tightening effects in financial markets may diminish the necessity for further rate increases.

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