Reluctant BoE urged to act by investment banks
New research suggests anything less than a 75bp hike from the BoE next week, could prove disastrous for GBP. The findings show that the UK must follow in the same footsteps as the ECB & Fed, if it is to survive a currency crash. The BoE has been criticized from the beginning of the recovery out of the pandemic, for being too slow to act. Further 'slow lane' movements are set to cause havoc in the £'s value according to Credit Suisse, HSBC, Barclays & Goldman Sachs.
With the Pound already down 3% versus the Euro in 2022 and a staggering 13% versus the US Dollar, anymore could see serious trouble for two reasons. The UK imports more than it exports and so if a currency weakens, it costs more to import that product/material, which would then be picked up by both the business and the consumer. Secondly, if interest rates are not attractive to foreign investors (a key component of UK GDP), money will not be coming into the country and down goes economic performance.
Some say this is the reason the ECB have and will continue to raise interest rates aggressively, to keep capital in the Euro-Zone as opposed to elsewhere in the world and help fight hot inflation. Even with the good news yesterday that UK inflation data came in lower than expected (meaning peak inflation has likely already happened), 50bp is being deemed as not sufficient.
For us, we originally believed 50bp would be the call seeing as inflation has been the main worry for some time now and Liz Truss' energy cap announcement almost squashed the concerns. However, the above information is hard for the BoE to ignore and so we expect 75bp will be the call, that will allow GBP to remain at current levels or perhaps kick on slightly. Obviously there is no crystal ball in this game and so if anyone has exchanges in the pipeline, we strongly recommend contacting us to discuss your risk appetite and the hedging strategies available to you.