Bank of England Bankrolls Market to Prevent Rate Hikes

The Bank of England's monetary policy committee has chosen not to raise interest rates at its recent meeting, despite expectations that they would increase. This decision is attributed to the 'Maradona effect', a concept first proposed by former Bank of England governor Mervyn King.

The Maradona effect refers to the way in which central banks can influence market interest rates without actually changing the official rate. In this case, the Bank of England has left the UK interest rate on hold at 3.75%, but mortgage rates have still increased by 79 basis points (0.79%) since February.

This phenomenon is named after a famous World Cup goal scored by Diego Maradona in 1986. King used this example to illustrate how the Bank of England can sometimes influence market interest rates without making any official changes, just like Maradona's goal was not as impressive as it seemed when re-watched.

The 'Maradona effect' relies on the central bank having credibility with investors, who must believe that the bank will raise interest rates if necessary. If this credibility is lacking, the market may not respond as expected, and interest rates could still rise.