Economists believe BoE will raise rates by 25bp
In the December meeting, the central bank in the United Kingdom increased the rates from record lows of 0.1% by 15bp to 0.25%, to be the first major central bank of G7 that started the rate hike. And now, in this meeting, the most consensus expectation is another 25bp interest rate rise to 0.5%. If BoE decides to do it will be the first back-to-back rate hike since 2004.
On the other hand, we have another group of analysts that believe BoE will hold the rates for a bit longer time before deciding to increase in the next meeting but can decrease the quantitative easing amount. Currently, the central bank has an £895bn ($1.2tn) asset purchase facility (£875bn in gilts and £20bn in corporate bonds). Also, any comment about the Bank's balance sheet will be the surprise of the meeting.
The reason that strict policies' fans insist on their opinion is the fast increasing inflation at its fastest pace in 30-year, especially with the latest comments, and researchers about the Omicron variant of coronavirus that shows it is much weaker than earlier estimates. Inflation, according to the latest updates of the Office for National Statistics (ONS) has been seen at 5.4%, which is the highest level since the early 1990s, up from a decade-high of 5.1% in November. And with plans of increasing the gas and general energy price in the UK, is expecting to raise higher even above 6%, before falling lower by year-end. Gross Domestic Product also increased by 0.9% growth in November, and the unemployment rate dropped to 4.1%.
As a reaction, since the market already priced in 25bp increasing rates, in case of raising the rates, it will support the Sterling against its crosses, however, it will not be a long-lived trend. On the flip side, if the central bank decides to stay hold and wait for a bit longer time, then the downtrend's slope will depend on decisions about the QE plan.
From the technical point of view, Cable in the Daily chart will try to change the direction above 1.355. However, any uptrend needs to be confirmed above 1.3650. In the current slight uptrend, the market volume is decreasing to signal that bulls have not had enough power at the moment. Above 1.3650, we can see 1.3840 as the next target. Bears also will be focusing on the 1.32s area in case of any dovish decision.
