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Bank of England interest rate expectations (31/01/22)

by Shafiq Shabir
Head of Electronic Trading, Intertrader

Traders are betting the Bank of England will again raise interest rates this Thursday, which, if realised, would make it the first back-to-back hike since 2004 following December’s shock decision.

Pressure has mounted on Threadneedle Street to act once again after December saw consumer prices unexpectedly soar by 5.4% year-on-year, with inflation at a near 30-year high. Markets have since priced in a 25bp rise, bringing rates to 0.5%.

This time round, the arguments for and against rate rises seem far less evenly balanced, with public concerns regarding the cost of living crisis intensifying whilst the economic hit of Omicron continues to recede. More interest rate rises seem inevitable to combat rapidly spiralling inflation, so the question is whether the Bank will risk being seen to drag its feet.

And it’s not just UK monetary policy that is tightening: officials on the other side of the pond have also endorsed imminent intervention, with Fed Chair Jay Powell last week all but confirming a hike at the US central bank’s next meeting in March. The jury is out on whether this will be quick enough action to curb inflationary pressure, but given the market’s reaction to the Fed’s plans, we can expect some choppy waters as central banks chart a new monetary policy course this year.

Published: 31 January 2022

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is a macro summary of scheduled news announcements and is not investment advice, independent research or an investment recommendation. The information provided is believed to be accurate at the date the information is produced.

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