The BOE to Deliver the 5th Hike in A Row, GBP Not Benefiting - Forex News by FX Leaders

The BOE to Deliver the 5th Hike in A Row, GBP Not Benefiting

Posted Thursday, June 16, 2022 by
Skerdian Meta • 2 min read

The Bank of England is going to deliver the fifth rate hike in a row in a while, but the GBP continues to remain bearish. A major detail to note going into the BOE policy decision today, is that the UK is leading the recession race among the major economies at the moment.

That puts the BOE between a rock and a hard place when it comes to policy setting and how much to raise interest rates in order to combat inflation. While the central bank was among the first to act, their gradual approach of 25 bps hike per meeting ultimately also seems to put them behind the curve as UK inflation looks set to hit double-digits sooner or later.

However, it is not to say that monetary policy was supposed to be the one-stop solution at the end of the day. But policymakers have pretty much outplayed themselves here as the deterioration in the economy looks to be taking shape much faster than anticipated.

With the UK set to encounter recession risks in the months ahead, it puts more risk on the central bank to make a policy misstep especially if they are to hike interest rates too aggressively. The thinking here now is that the more aggressive the BOE is, the quicker it is inviting recession risks. At the end of the day, I would argue that should lead to a softer pound on the balance of things (eventually the BOE will have to step back sooner).

Given the predicament, it puts the BOE in a rather unenviable spot as another 25 bps rate hike today will do little – or should I say nothing – in terms of bringing down inflation while a 50 bps rate hike or more would just stir up the debate on recession risks. Whichever way they decide to go with, I think the risks for the pound are still to the downside in the aftermath of this meeting.

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