Not for the first time this year, markets have been dominated by interest rate discussions, with decisions coming from both the UK and the US last week.

In the UK, the Bank of England (BoE) raised rates to 3% – a 0.75% increase – as it sought to limit inflation. This is the largest single hike since 1989, and the highest overall rate in 14 years – since the 2008 recession.

On the topic of recessions, the BoE now expects the UK to enter a recession for the next two years, with inflation set to remain stubbornly high.

Speaking after the news, BoE Governor Andrew Bailey admitted rates may well continue to rise. However, he noted: “Further increases in Bank Rate might be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets.”

Overall, this was a mixed message for investors. The increased interest rates and messaging around recession will no doubt be worrying. However, Bailey’s comments that interest rates may not need to increase by as much as some were predicting will have provided some encouragement. This may partly explain the FTSE 100’s 4.1% jump over the week.

In the US, the Federal Reserve acted in a similar manner, lifting interest rates by 0.75% but with a softer message.

In a note, the Fed said: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Tempering expectations, in the following press conference Fed Chairman Jerome Powell pointed out that while it will be appropriate to slow the pace of fiscal tightening at some point, there is still some way to go, and that the ultimate level of rates could end up higher than previously expected.

Taking all this into account, Keith Wade, Chief Economist & Strategist at Schroders, noted: “In the Q&A session Powell added that the recent strength of the inflation and employment releases had led him to that view. This opens the door to a smaller rate rise in December, say 0.5%, but the tone of the press conference means it will require softer readings on inflation and the labour market. There will be two prints of each of these before the next Fed decision on 14 December. It would seem that the Fed has turned off the autopilot but remains to be convinced that it has reached its destination.”

The S&P 500 fell by 3.4%, whilst the tech- heavy NASDAQ slumped by -5.7% with many tech giants including Meta and Amazon continuing to face the fallout from disappointing earnings results.

Outside of the UK and US, Chinese markets moved up on speculation that the government was considering relaxing its zero COVID-19 policy. This helped the Shanghai Composite index to jump 5.3%. These hopes were somewhat curtailed over the weekend, however, when Chinese health officials said the country would ‘unswervingly’ stick to its current policy.

The coming week has some important events that could affect markets. This includes the US mid-terms, which could see President Joe Biden’s Democrats lose control of Congress. Turning to financial markets, on Thursday, the inflation rate for the US will be released, with many hoping to see it fall below 8.0%. Then, on Friday, the UK will release its preliminary third-quarter GDP data, which is generally expected to show a contraction.

On Sunday, COP27 launched in Sharm el-Sheikh, Egypt. It is a much-needed chance for global leaders to refocus on climate change. One year ago, the world looked to Glasgow as a historic deal on climate change was announced at the COP26 conference.

The deal achieved agreement in many areas, including a critical commitment to cut coal use, with 190 countries agreeing to phase out coal power, and a commitment by 137 countries to “halt and reverse forest loss and land degradation” by 2030. Since then, the war in Ukraine and the energy crisis have highlighted the fragility of our current energy market and the importance of diversifying our energy sources.

Leaders at this year’s upcoming climate conference are challenged to refocus the world on fighting climate change and building on the successes of previous conferences. Here’s everything you need to know about this year’s event.

Topics will range from direct action to stop climate change to education, scientific innovation and climate finance. The most important theme is what countries and other bodies will do to further their carbon-cutting efforts. But there is increasing focus on adapting and building resilience to the impacts of global heating.

Petra Lee, Responsible Investment Consultant, says: “COP26 received much attention, but that fell away quickly because of Russia invading Ukraine and the energy crisis. COP27 is a much-needed moment for us to refocus. While the energy crisis and Ukraine war are acute and front of mind, the climate-change crisis is chronic.

“People feel a sense of permanent crisis. But we must concentrate on solutions in our control. The future hasn’t been written yet and we can improve on previous decisions.”

Petra says COP26 had a galvanising effect. Speeches from broadcaster David Attenborough and Barbados Prime Minister Mia Mottley helped spread a powerful message about climate change to a wider audience. Companies and investors committed trillions of pounds to carbon-cutting targets, showing how many are already working towards net zero.

“Companies’ share prices attract a premium because of that work,” says Petra. “But investing according to climate principles also creates a powerful collective effect because it aligns the world’s capital with carbon-reduction targets; holds companies to account; and pressures them to put weight behind their pledges.”

“There is no long-term prosperity without action on climate change. There is no energy security without investing in renewables. That is why I will attend COP27 next week: to deliver on Glasgow’s legacy of building a secure and sustainable future.”

Rishi Sunak on the importance of COP27, which began on Sunday.