Sterling Gains as BoE Hikes Rates, Commits to More to Tame Inflation

Forex 41 minutes ago (Dec 16, 2021 08:05AM ET)

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By Dhirendra Tripathi

Investing.com – Sterling GBP/USD rose 0.8% Thursday against the dollar as Bank of England raised interest rates for the first time since the pandemic struck.

The U.K. central bank raised the Bank Rate by 0.15 percentage points to 0.25% and committed itself to more hikes in coming months as it attempts to bring surging retail inflation back to its target of 2%. The BoE now expects GDP to grow by 0.5% in the fourth quarter, slower than anticipated earlier. Yields on the benchmark 2-Year U.K. government bond surged.

BoE is the first in the G7 to have hiked rates since the pandemic and was prompted by the country’s annual retail inflation hitting 5.1% in November from 3.1% just two months back.

The central bank said staff expect inflation to remain around 5% through the majority of the winter period, and to peak at around 6% in April 2022, when the cap on regulated household energy prices is raised.

BoE said although the Omicron variant is likely to weigh on near-term activity, its impact on medium-term inflationary pressures is unclear at this stage and a hike was thus warranted at this juncture.

Britain recorded its highest number of new Covid cases Wednesday, with 78,610 new cases. Hospital admissions, however, have not risen in tandem so far, as they have done in previous waves of infection.

Concerns over inflation are now occupying center stage at most central banks. The clearest recognition of this came from the Fed Wednesday which said it would end its pandemic-era bond purchases in March and hike rates three times in 2022. Consumer prices in U.S. are at a 39-year high, forcing Fed to commit to rate hikes even if recovery falls short of full employment.

Earlier in the day, Norway’s central bank doubled its base rate to 0.5%, its second hike in three months.  The Bank of Mexico is expected to raise its key rate by another 25 basis points to 5.25% later Thursday.

Sterling Gains as BoE Hikes Rates, Commits to More to Tame Inflation

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December 17, 2021 at 01:05AM
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