November rate hike very likely for UK

Hi everyone,

 

Yesterday, we had the strongest hint yet that the BoE are set to raise interest rates to tackle the high inflation rate in the UK. In a speech given by BoE Governor Andrew Bailey at a forum, he explained that 'because of the energy crisis, inflation has been pushed higher, for longer and we will have to act'.

 

The BoE have suggested for months that high inflation is temporary and that's why an interest rate hike was priced in for early-mid 2022. However, a surge in energy prices looks like it may have forced the hand for the UK to be one of the first countries to raise interest rates from crisis-era lows. 

 

Central banks have been the main market movers since covid cases/deaths and vaccination numbers took all the headlines initially. The £'s recent rise on the back of an incoming rate hike, reflects this is still very much the case. We think Wednesdays inflation rate confirms next month's rate rise and therefore Sterling could be in a stronger position for week/s ahead.

 

However, a rate rise doesn't automatically mean the Pound will surge. In fact, we firmly believe current prices have already factored in the rate hike with the £-€ increasing nearly 3% in just over 2-weeks. We will of course be happy to see Sterling push higher on the back of the news, but remain cautious this may be as good as it gets for now. If the hike doesn't arrive, you can bet that the £ will fall, but this doesn't look likely at this stage.

 

The Pound has once again started the week well and £-€ rates remain at a 20-month high with £-$ touching a 3-week high now. There is important data on the calendar this week apart from inflation with a 'super Friday' ahead. PMI's haven't been positive of late for both the EU & UK, so these will be interesting releases as well as the confidence and retail sales figures.

 
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