UK inflation data hit a record high in a decade, bringing fresh uncertainty ahead of tomorrow's BoE policy meeting.
Pound sterling rose more than 0.3 percent to the range of 1.3280 against the US dollar in European trading session (15/December), following the release of UK inflation data which went higher than consensus expectations. The majority of analysts still believe the British central bank (BoE) will not announce a rate hike at tomorrow's policy meeting, but there is a chance for an impromptu hawkish surprise.
The UK Office for National Statistics (ONS) reported that consumer inflation grew 0.7 percent (Month-over-Month) in November 2021. This growth was lower than the 1.1 percent increase in October, but higher than consensus expectations of 0.4 percent. The annual inflation rate also picked up from 4.2 percent to 5.1 percent, outperforming market forecasts of only 4.7 percent.
The UK inflation report this time brings new uncertainty ahead of the BoE's policy meeting tomorrow. The reason is, this is the highest inflation record in the last decade.
Money markets have completely erased hopes for a BoE policy change this year, so interest rates may remain at 0.1 percent until January 2022. Market forecasts are pegging a "BoE rate hike" as early as February 2022, as policymakers will need time to evaluate the impact. economics of the Omicron variant COVID-19. However, it is possible that the BoE will raise interest rates tomorrow if the inflation rate is deemed too high.
"In normal times, the BoE might have raised interest rates by 40 basis points in our view. (But) this is not normal time. They were waiting for the employment uncertainty to be resolved. Now they are probably waiting for the Omicron uncertainty to be resolved," said Robert Wood, UK economist at Bank of America.
Wood added, "(Right now) this remains unpredictable. BoE officials' speeches provide very little hint in our view. A 15 basis point rate hike would not change the outlook too much, so they might (also) conclude that a small hike... .is a necessary signal for the labor market."
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