Will the market turmoil stop Bank hiking rates this week?

the Bank of england’s next interest rate decision is on a knife edge after Credit Suisse became the biggest lender yet to succumb to the turmoil engulfing global banks.

Fellow Swiss giant UBS agreed to buy the bank for £2.6billion in a deal orchestrated by the country’s authorities in an attempt to prevent the crisis spiralling further.

It came as the Bank of england prepares to make a decision on interest rates on thursday. A week ago it was expected to back another increase from 4 per cent to 4.25 per cent in the battle against inflation.

But investors are betting that the turbulence sparked by the collapse of America’s Silicon Valley Bank may have put paid to that.

this could be a relief for UK borrowers already being squeezed by a rapid increase in rates over the past year-and-a-half.

the aim for global leaders is to prevent the turmoil from spreading with consequences for the worldwide banking system. If this results in banks holding back lending, that could hit consumer spending and business investment, causing economic damage.

A spokesman for rishi Sunak said he had been ‘kept regularly updated’ by the treasury and Bank of england. the Prime minister had also spoken to Switzerland’s president Alain Berset.

‘It is good that a resolution has been secured,’ the spokesman added. the Bank of england also welcomed the Swiss deal, adding that the UK banking system ‘remains safe and sound’.

meanwhile, in a global response not seen since the height of the pandemic, central banks in the UK, US, Canada, Japan, the eurozone and Switzerland agreed coordinated action to keep money flowing around world economies.

however stock markets had a volatile time after the rescue for Credit Swiss, plunged into crisis when its biggest investor refused to put in any more funds, was announced on Sunday but later turned calmer.

many banks have vast holdings of bonds, which fall in value when interest rates rise, exposing them to a loss were they to be sold.

that was the cause of Silicon Valley Bank’s demise and traders expect this to make central bankers more cautious over rate rises.

But even before the collapse, some of the Bank of england’s rate-setting committee were arguing no more rises were needed.

this is because forecasts already suggested inflation is coming down and too many hikes could cause further pain for borrowers.

the turbulence could add further pressure for a pause while the markets have already cut their odds on the Bank raising rates.

In America, the US Federal reserve decides tomorrow on whether or not to hike its rate.

Amid the turmoil, the London FtSe 100 yesterday opened more than 100 points lower but bounced back to end 68.4 points higher at 7,403.

however major banking shares suffered more volatility and finished the day in the red.