The pound did not receive support from the Bank of England

There were further interest rate hikes in "Wyspia". The BoE decided to take the same step (up by 75 basis points to 3%) as the Fed two days ago and the ECB last week. The decision itself was expected by the market, so there was no surprise in this field.

Cost and price pressure

The Bank of England argued its decision tense situation on the labor market, increasing cost and price pressure and market expectations. One of the bank's representatives was in favor of a 50 bp move. It was emphasized that a larger rate hike in November is likely to help bring inflation back to the 2% target. in a sustainable manner in the medium term and will reduce the risk of a more costly tightening thereafter.

So why has GBP depreciated? Primarily Bank of England assumes that the end of rate hikes will be lower than expected by the market even before the meeting (lower than 4,75%). Additionally, the BoE published new projections for inflation and economic growth. Currently, the CPI peak is expected to be slightly lower than in August. This is mainly due to various government measures to curb the rise in energy prices. The BoE assumes that some suppression measures will continue beyond the current six month energy price guarantee period. However, there is still a lot of uncertainty here.

Inflation in Great Britain

The UK government will present its fiscal plans on November 17th, which may still affect the inflation outlook. The BoE expects the inflation rate to drop significantly from spring 2023, and even below the 2024% target in 2.

The hint that the market expected too aggressive rate hikes and the fact that two members decided that today's move by 75bp was too strong speaks for a slower pace in the future. Therefore, a smaller step could take place at the next meeting in December, let's say by 50 bp. The outlook for 2023 will therefore probably depend primarily on the further development of inflation.

GPB / USD exchange rate continued declines yesterday. Their dynamics was enhanced by the dollar strength that resulted from the Fed's decision on Wednesday. Quotations dropped already on Monday from the mid-term downward trend line, which suggests that we are returning to the dominant downward trend.

Source: Łukasz Zembik, OANDA TMS Brokers