Pound (GBP) Steady ahead of Bank of England Rate Decision
At the time of writing, the Pound Euro (GBP/EUR) exchange rate is trading around €1.1519. While the Pound US Dollar (GBP/USD) exchange rate trades at around $1.2623. Both pairings virtually unchanged from this morning’s opening rate.
What are Economists Expecting from the BoE
The Bank of England is widely expected to raise interest rates by another 25bps when it concludes its May policy meeting on Thursday.
This will be the BoE’s 12th consecutive hike and will see interest rates rise from 4.25% to a new 14-year high of 4.5%.
Interest rates have surged since December 2021 as the BoE seeks to bring UK inflation back under control. The UK’s latest consumer price index reported inflation was at 10.1% in March. Well above the BoE’s target rate of 2%.
As GBP investors have largely priced in another 25bps hike any subsequent movement in the Pound is likely to be driven by any hints as to the BoE’s future policy plans.
Could Interest Rates Rise Even Higher?
There has been considerable speculation as to when the Bank of England will bring its current tightening cycle to an end.
The recent string of interest rate hikes are putting pressure on an already weak UK economy, and the BoE will be vary of tipping the country into a recession.
The general consensus seems to be that the BoE is nearing the point at which it will call time on further rate hikes. With many analysts predicting this month’s increase will be its last for the time being.
However, in light of another double-digit inflation reading in March, there is an argument to be made that more action is needed.
How Might the Pound React?
If the Bank of England hints interest rates have peaked with Thursday’s increase the Pound is likely to weaken.
In contrast, if the BoE leaves the door open to further hikes in the coming months it’s likely Sterling will strengthen. Potentially seeing the GBP/EUR and GBP/USD exchange rates test new multi-month highs.