The Bank of England is widely expected to copy the Fed in terms of decision-making to raise interest rates by another 25-basis point when it concludes its May policy meeting today.
This could be the UK central banks 12th consecutive hike and will see interest rates rise from 4.25% to a new 14-year high of 4.5%. As it trades at 1.2600 the GBP has largely priced in another 25-basis point hike.
Any subsequent movement in the Pound is likely to be driven by any hints as to the BoE’s future policy plans, whether this be hawkish or dovish central bank commentary.
UK interest rates have surged since December 2021 as the BoE seeks to bring UK inflation back under control, additionally, this has happened during a period of soft economic data.
The recent consumer price index from the United Kingdom reported that the inflation was at 10.1%. The rate remained above the 10% mark for a seventh consecutive period and the Bank of England’s 2% target for almost two years, suggesting policymakers might continue to raise borrowing costs.
There has been speculation as to when the Bank of England will bring its current tightening cycle to an end, only a big drop in inflation will make that conversation more real.
The core inflation rate, which excludes volatile items such as energy and food, was unchanged at 6.2% in March, not far from September’s record of 6.5%. The cost of living in the UK is very high currently.
Therefore, the recent string of interest rate hikes is putting pressure on an already weak UK economy, and the BoE will be varied of tipping the country into a recession.
With many analysts predicting this month’s increase will be its last for the time being. I am skeptical about this as it is very clear with high inflation more action is needed.
