Hawkish BoE lifts the Pound
The Pound has recaptured the recently lost ground after some 'rubber-stamping' from the BoE yesterday. Some of the main comments were around high inflation heading into the winter and beyond. Economists now put the chances of a UK rate hike in February 2022 at 80%. Even some of the big investment banks like Citi & JP Morgan have immediately brought forward their expectations on an earlier hike.
The BoE expect inflation to hit 4% much sooner than expected in-line with analysts recent forecasts. Continued high inflation would squeeze household cash further, after the recent tax hike news. The BoE is already under some pressure with the timing as the ECB & Fed announce tapering is on the cards. Plus, as the UK is a net importer of goods, a rising Pound would ease inflationary pressures, so the BoE doesn't really have a choice but to raise rates soon.
We may start to see then new near-term forecasts on the £ after this news. A rally was certainly seen yesterday straight after the announcement with Sterling rising 0.5% against a basket of currencies, after an unsteady start to the week. Let's see what next week brings as both the end of month & quarter is likely to carry on the volatility.