British Pound: Upside Remains Capped Despite Hawkish BoE – Commerzbank

Unanimous backing for a Bank of England (BoE) rate rise, with one policymaker favouring a larger increase, gave the decision a hawkish tone, according to Commerzbank’s Michael Pfister. Although Governor Andrew Bailey indicated that further rises are likely, he offered no timetable. Commerzbank continues to expect the next increase in February rather than December, with the British Pound (GBP) likely to find it difficult to advance in the meantime.

Pound gains falter despite united BoE vote

"As expected, the Bank of England raised interest rates yesterday. But in contrast to the Czech National Bank, the vote turned out to be surprisingly hawkish. While two votes in favour of keeping rates unchanged had been anticipated, ultimately all policymakers voted in favour of a rate increase, with Catherine Mann even voting for a 50-basis-point increase. Mann is known for her volatile voting behaviour, meaning she may vote to keep rates unchanged next time, but policymakers generally appear more united on the risks posed by inflation than previously thought."

"In his remarks, BoE Governor Andrew Bailey emphasised that this is unlikely to be the only interest rate rise. Unless the war were to end suddenly, there is a strong case for a further rate rise."

"Despite this rather hawkish decision, the pound only benefited briefly and had to give up its gains as the day progressed. At first glance, this may seem confusing, but expectations ahead of the meeting were quite ambitious, with almost three further rate rises priced in by the middle of next year. Moreover, Bailey gave no indication of the timetable following the next rate rise."

"We remain firmly of the view that the BoE will not deliver a second interest rate rise until February rather than in December, as this would contradict its cautious approach to date. However, if the situation in the Middle East has stabilised by then and energy exports have normalised, the case for further interest rate hikes will be weaker. Until then, the pound is likely to struggle to trade any higher."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)