With inflation still proving problematic the Bank of England are predicted to introduce another interest rate increase to try and tackle the ongoing issue at this month’s meeting. It is expected by economists and financial markets that the decision to hike rates is looking almost certain amid growing concern over the pressure on households and living costs. It would be the first time the bank has announced a back-to-back rate hike since 2004.
Interest rates are being hiked to try and tackle soaring inflation which has risen 5.4% in December, reaching its highest in almost 30 years. Interest rates are expected to move from 0.25% to 0.5% in response to December’s figures.
The MPC are expected to confirm the start of (passive) quantitative tightening (QT) with reinvestments dropping out of the Bank's balance sheet from next week onwards. This will be the first time ever that the Bank has embarked on QT.
The GBP has been trading above 1.20 in anticipation of this. Higher interest rates are usually supportive for the pound and indicates that UK inflation is likely to remain elevated above 2.0% for some time.
Meanwhile expectations of the ECB meeting signal no move on tackling their inflation as they have laid out plans to continue asset purchases this year and indicated that an increase in interest rates is highly unlikely. Despite no signals of a rate hike markets are pricing in the prediction of one hike before the end of the year as the Eurozone tempers inflation.
