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Chances of a rate hike by the Bank of England continue to increase

2022-07-29

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The UK labor market is turning around

More complexities are emerging in the labor market. There appears to be a turnaround in job openings, a sign that the economy is either starting to play through the supply-demand distortions caused by the pandemic, or that hiring is slowing. Tensions in the UK labour market are easing rapidly, making the August jobs report all the more important.

Chances of a rate hike by the Bank of England continue to increase

Weak UK data limits GBP and USD gains

Gains in GBP/USD were limited during the European session due to weak UK domestic economic data. However, the pair broke above the 1.21 level as risk sentiment improved after the Federal Reserve signaled that the pace of rate hikes could be slowed ahead after announcing a 75bps hike. GBP/USD rose 1.02% yesterday, while GBP/HKD closed at 9.54.

The employment report affects the central bank to raise interest rates

Standard Chartered's Graham said: "The mid-August jobs market report will be crucial and will determine whether a 50bps rate hike is needed later in the year (as the market expects) or whether the pace of monetary tightening is will slow to 25bps of rate hikes (as we expected).” At the next monetary policy meeting on Aug. 5, there was enough economic evidence to support a 50bps hike, but after that, economic activity slowed down. The slowdown, and further evidence that the labor market is cooling, should support a slower pace of rate hikes (25bps each in September, November, and December).

Goldman Sachs expects the Bank of England's stance on raising interest rates to hit the pound

The head of foreign exchange strategy at Goldman Sachs said that the Bank of England's cautious attitude towards raising interest rates will lead to further declines in the pound; the slow pace of interest rate hikes by the Bank of England is one of the main reasons for the 11% decline in the pound against the dollar this year. Sterling is expected to fall further to 1.19 over the next three months, more bearish than analysts' consensus forecast of 1.21.

The next UK inflation data will affect the probability of interest rate hikes

The Bank of England's interest rate hike expectations are heating up. The UK energy regulator (Ofgem) previously said that the UK's energy price ceiling will continue to rise in October, and it is a high probability event that UK inflation will gradually climb to double digits in the next few months. This is expected to prompt the Bank of England to change its cautious interest rate hike attitude to aggressive and thus boost the pound.

Barclays expects the Bank of England to raise interest rates by 50 basis points in August

Barclays now expects the Bank of England to raise rates by 50 basis points in August and 25 basis points in September, raising the bank rate to 2% and will keep it there. Meanwhile, Berenberg Bank economist Kallum Pickering said the Bank of England hiked rates at its Aug. 4 and Sept. 15 meetings, given the hawkish signal from BoE Governor Bailey. 50 basis points is the most likely outcome (up from the previous forecast of 25 basis points).

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Chances of a rate hike by the Bank of England continue to increase

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