The Bank of England rate decision is likely to be the central banking event of the week due to the expected scale of the increase that the UK central bank is set to deliver.
This week the Bank of England is tipped to unveil the biggest interest-rate increase in 27 years with a 50-basis point rate increase. So far, the BOE has increased rates five times since December, moving in 25 basis point increments.
Admittedly, the central bank needs to move very carefully with the pace of rate hikes as the UK housing market is very sensitive to large increases due to borrowing costs.
Borrowing costs for the heavily mortgaged housing sector in the UK has enjoyed low rates for over a decade. Strapped borrowers could soon feel significant paint.
The risk would be a dramatic slowdown in the housing market and also a hit to retail spending as higher borrowing stops retail spending by strapped homeowners.
Without a doubt the UK central bank is hoping that the potentially historic rate hike is going to help fight the worst bout of inflation in 40 years.
Governor Bailey and his colleagues recently warned that prices may leap 11% this year, well above the 2% target. This is a staggering rise considering the banks mandate.
Investors anticipate a high probability of a half-point increase in the BOE’s benchmark rate to 1.75%, the highest since the global financial crisis in 2009.
The Bank of England is also going to announce unveil its strategy for unwinding some of the £895 billion ($1.1 trillion) of stimulus it delivered over the past decade.
US Federal Reserve officials raised rates a total of 1.5 points at its past two meetings. For the BOE, rate increases also will underpin the value of the pound, which has fallen 10% against the dollar this year.
The UK100 is enjoying strong technical buying despite Foreign Secretary Liz Truss and the former Chancellor of the Exchequer Rishi Sunak being locked in a leadership battle.
A decision is due at noon on Aug, 4th and is likely to be a big market mover for the British pound which looks to be pricing in a rate hike of some magnitude based on the recovery its staged over recent weeks.
