British inflation hits 40-year high, central bank may raise interest rates by 50 points

GBP/USD continued its recent rebound, with the Governor of the GBP Bailey saying that the Bank of England will consider raising interest rates by 50 basis points in August to speed up the pace of fighting inflation. In addition, the Bank of England may reduce its holdings of British government bonds, i.e. start quantitative tightening. The Bank of England has finally figured out whether fighting inflation is the primary concern.

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Morgan Stanley said in a note: “We continue to expect GBP/USD to trade lower, mostly driven by broad-based dollar strength, but on the GBP side, we think prices are now pricing in a lot of bad news. The low outlook for near-term fiscal stimulus means that As a result, UK growth will remain subdued for the rest of the year, limiting the Bank of England's ability to substantially tighten monetary policy. Nonetheless, this is nothing new."

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Bank of England Executive Director Benjamin: Investment banks must challenge themselves in the current volatile environment. Banks often assess risk through a historical perspective, which may not apply in future situations. The surge in nickel prices shows that the window for investment banks to finally get their counterparty risk management lessons right is closing fast. When the situation worsens, some companies that have relied on a loose environment for the past decade are likely to struggle to adapt.

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UK inflation hit a 40-year high in June, exacerbating the cost of living crisis and increasing pressure on the Bank of England to raise interest rates sharply next month. Britain's CPI rose 9.4% in June from a year earlier, up from 9.1% in May, as motor fuel prices surged 9.3% in the month. Prices are now rising much faster than wages are rising. The pain for British households will get worse as energy prices rise again in October and inflation is expected to exceed 11%. Bank of England Governor Bailey last night raised the possibility of a 50 basis point rate hike in August. This action, if realized, would mark the first time the Bank of England has raised interest rates by 50 basis points since gaining independence in 1997.

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British Conservative MPs completed the fourth round of voting on the four candidates running for the Conservative Party leadership. The list of candidates entering the fifth round of voting has been released, they are: former Chancellor of the Exchequer Rishi Sunak (118 votes), former Defense Secretary Penny Mordaunt (92 votes) and Foreign Secretary Elizabeth T. Russ (86 votes). Those candidates will also face 1 round of voting until the last 2 contenders remain. Afterwards, around 160,000 Conservative Party members will vote on the final 2 candidates, with the results to be announced on September 5, when Boris Jensen will hand over the keys to the prime minister's office.

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According to data released by Eurostat, the harmonized CPI in the euro zone continued to rise by 8.6% year-on-year in June after an 8.1% year-on-year increase in May, continuing to hit a record high. The severe surge in inflation has increased investors' expectations that the European Central Bank will increase interest rates this week. The recent fall in the dollar from its highs has also indirectly contributed to the euro's rebound.

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The European Central Bank is about to announce the first interest rate hike in 11 years (25 basis points), which will activate the mechanism to deal with financial fragmentation and support countries with economic difficulties. While downside risks to growth have increased, for now, the ECB's guidance of a possible 50bps rate hike in September is likely to remain in effect, in part because inflation forecasts need to be revised up again in September, at least in the short term .

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Deutsche Bank economist Mark Wall said that if the ECB raised interest rates by 50 basis points on Thursday, deviating from its previous guidance, it could indicate that officials are willing to finally abandon the practice of communicating plans in advance. If ECB policymakers ultimately decide to raise rates by 50 basis points, "no one will criticize" them, the economist said. He believes that the consistent experience this year is that in such an environment of rapidly rising inflation, the central bank's forward guidance can quickly become outdated. If the ECB deviates from guidance and raises rates by 50 basis points on Thursday, it will prove that it is indeed in data-dependent mode.

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The UK Met Office said the UK's first temperature soared above 40 degrees Celsius and authorities had declared a "national emergency" due to the unprecedented temperature. Train lines from London to the country's east and west coasts were suspended, and the usually busy city centre appeared quiet. The rail network tweeted photos showing the tracks twisting from the heat. In east London, a fire has engulfed a house in the village of Wennington, blazing across neighbouring fields and approaching a historic church. Fires have broken out in large areas of grass around London.