BoE: Bailey will break the Pound’s surge

Regarding rising interest rates, that appears to be the thinking going through the minds of Bank of England (BoE) policymakers. Despite persistent inflation and salary increases, the “Old Lady” has predicted a downturn. Accordingly, the Bank of England is expected to raise borrowing prices at its forthcoming ‘Super Thursday’ event, but without a hawkish approach, the Pound may fall.

The following is a preview of the Bank of England’s “Super Thursday” event, which will take place on May 11 at 11:00 GMT.

The weather may be frigid, but inflation in the UK is hot: 10.1% in March, compared to 5% in the US and 6.9% in the Eurozone in the same month. The Bank of England aims for a headline Consumer Price Index (CPI) of 1% to 3%.

Core CPI, which eliminates volatile goods prices, is also too high at 6.2%, indicating that price increases are being driven by factors other than rising energy costs. Labour scarcity and union demands have boosted wage rise.

Salaries, including bonuses, are up 5.9% year on year in February, and when bonuses are excluded, they are up 6.6%, which is higher than the Core CPI.

At the same time, the Bank of England’s interest rate is now 4.25%, so raising it to 4.5% would be a catching-up exercise with growing prices.

The rate rise of 25 basis points is already factored in; sterling has already gained in response to the data. Markets are concerned with two factors: the Monetary Policy Committee (MPC) voting pattern and the bank’s quarterly Monetary Policy Report (MPR).

In the last rate decision, two members voted against the majority of seven to keep borrowing costs unchanged. If the pattern continues despite positive statistics, the Pound will suffer. Any extra member who chooses to stay would be far worse.

The quarterly report, which includes inflation estimates, makes “Super Thursday” special. The Bank of England had earlier predicted a reduction in pricing pressures. Instead, it will almost certainly have to modify them higher, but by how much?

The Pound will suffer if Bank of England Governor Andrew Bailey and his colleagues continue to forecast a sharp decline in inflation. For the Pound to grow, it must demonstrate above-target prices for this year and 2024.
Bailey and many colleagues will speak to the press around 11:30 GMT, when the currency is most vulnerable. The governor has a habit of seeing the glass as half empty. He had previously predicted a recession, advised workers not to seek large wage raises, and even questioned additional rate hikes.