The Bank of England’s decision to raise interest rates this week seems certain as markets react to the unexpected surge in inflation last month.
As of this morning, traders have placed a 99% probability on the Monetary Policy Committee increasing rates by 0.25 percentage points tomorrow.
Initially, there was a 50-50 chance of a rate hike or a pause on Tuesday due to the banking industry’s upheaval. However, the current outlook indicates a rise from the present rate of 4%. Consequently, the pound has strengthened this morning in anticipation of the rate increase.
Following the unexpected surge in the consumer price index to 10.4% in February, Sterling soared as much as 0.6% towards $1.23, contrary to the anticipated fall to 9.9%.
Prior to the inflation data, Paula Bejarano Carbo, an associate economist at the National Institute of Economic and Social Research think tank, had predicted that the Bank would not raise rates in response to the turbulence in the banking industry. However, in light of today’s data, and the anticipated impact of incoming wage hikes on inflation in the coming months, Carbo wondered if it would be a mistake not to increase rates.
Kitty Ussher, the chief economist at the Institute of Directors, suggested that today’s data indicated that the Bank of England’s job was not yet completed.
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