After a week of postponement due to the death of the British Queen Elizabeth II, The Bank of England will issue a new interest rate decision this Thursday. The Bank Rate is currently at 1.75%.
For the UK, the markets are predicting a sharp interest rate hike of between 0.5 and 0.75 percentage points. It is certainly necessary in view of the even higher inflation rates.
The week respite allows the BoE to first wait and see what the Fed does and then decide whether interest rates in the UK will go up by 50 or 75 basis points. In August, inflation in the United Kingdom reached 9.9 percent on an annual basis, a fraction lower than in July. Inflation will remain stubbornly high for longer, although it is positive that the UK wants to freeze utility bills.
An interest rate hike of 50 basis points is expected. The plans of the new prime minister Liz Truss to tackle the energy crisis reduces the upward pressure on inflation expectations in the short term. A sharp interest rate hike is needed not only to combat inflation, but also to slow down the sharp decline in the British pound against both the dollar and the euro.
Still, the recent devaluation of the pound will not yet force the BoE to raise interest rates more aggressively, Bank of America thinks, but if the currency loses value even further, it could have an impact on the monetary policy of the British central bank.
The Bank of England will announce its interest rate decision on Thursday at 13:00.