Will the Bank of England Raise Interest Rates?
Quick Summary
The Bank of England will soon bring to a close its program of interest rate increases. The markets will then need to decide the underlying strength of the economy and whether that is enough to support the currency. There is a growing concern that there are few reasons to buy sterling without continued tightening of monetary policy, which may lead to a drop in the pound. The upcoming budget from Jeremy Hunt and the potential public sector revolt may affect the economy’s performance and the pound’s value. The Federal Reserve’s credibility has been questioned but Jerome Powell has defended the Central Bank’s policy and been surprised by the good employment data.
Full Story – Will the Bank of England continue to raise interest rates? – Pound Sterling Forecast
Will the Bank of England continue to hike rates?
At some point in the not-too-distant future, the Bank of England will bring to a close its program of interest rates increases. At that time, the financial markets will need to decide on the underlying strength of the economy, and whether that is sufficient to allow it to support the currency.
There is a growing concern that there are very few reasons to buy sterling outside the continued tightening of monetary policy. When that crutch is withdrawn, the pound could see a significant tumble.
Although the Federal Reserve is also possibly close to ending its own tightening, the ECB is still considered to have at least one hundred points of rate increases up its sleeve, and this could see the pound test at least the 1.10 level versus the single currency.
In financial market terms, it has been a considerable time since the pound has found itself stripped of any support outside the basic economic fundamentals.
The Central bank has not exactly covered itself with glory over the past fifteen months or so as it has continued to perform a series of dovish hikes, where the Governor’s press conference following the announcement of yet another rate rise has had an almost apologetic air.
Andrew Bailey has not felt committed to the series of rate hikes that have taken place since December 2021 and this has been a function of a Monetary Policy Committee which contains several dissenting voices.
If the pound is to stand or fall based on the performance of the economy, the upcoming budget that will be presented to Parliament by Chancellor of The Exchequer, Jeremy Hunt on 15th March will need to inspire confidence that the Government remains fully committed to economic growth.
As Hunt said in an interview recently, the fact that the country avoided a recession in 2022 is welcome, but the economy is far from out of the woods yet.
Public sector pay remains a thorn in the side of the Government. Yesterday, nursing unions announced that they will begin to hold forty-eight-hour strikes beginning early next month and that A&E staff will be included in the walkout.
Similar actions have been announced by postal and railway workers, who plan to step up the pressure on Rishi Sunak.
The Prime Minister is facing a summer of discontent as a public sector revolt threatens to further damage any thoughts of the Conservative has of being re-elected.
US Dollar News
The credibility of the Federal Reserve has come under scrutiny several times since early last year, as it appeared fairly positive about the rise in inflation that went from being like a small bonfire to something similar to a forest fire in exceptionally quick time.
Jerome Powell has had to quickly learn how perception plays almost as important a part in confidence as the reality of hard and fast data.
While inflation has begun to fall, Powell has been staunch in his defence of the Central Bank’s continued tightening of monetary policy, and he was very clear in his view that the economy was not going to suffer a damaging recession in later 2022 as several prominent business leaders and bankers were advising caution.
He has proved himself to have a solid view of just how high interest rates will need to be in order to restrict the economy and dampen demand.
He has been as baffled as the rest of the financial community by the employment data, which was predicted to have seen the economy shedding jobs by now.
It may be that the move to cut the rate at which interest rates were hiked at the last FOMC meeting is considered to be inspired. The latest inflation data showed that prices continue to fall, and although they are not falling…
