Bank of England (BoE) Chief Economist Huw Pill said on Wednesday that he is a bit more sceptical about market pricing of four rate hikes over the next year. Pill added that UK output and labor market have proven more resilient.
I am a bit more sceptical about market pricing of four rate hikes over the next year.
UK output and labor market have proven more resilient.
Better forecasts still not showing runaway growth rates.
Even if AI boosts the supply side, it will take time to feed in.
Underlying UK inflation never fell enough pre-Iran shock.
At the press time, the GBP/USD pair is up 0.07% on the day to trade at 1.3264.
FXS Speechtracker shows a slightly softer tone from Pill, with the current 7.2 score just below the historic 7.5 average, pointing to a modestly less hawkish stance. Pill’s scepticism about market pricing of four rate hikes over the next year tempers expectations for aggressive tightening, even as UK output and the labor market remain resilient and underlying inflation is judged as still too elevated.
The emphasis on better forecasts that still lack runaway growth and the view that AI-driven supply gains will be slow to materialize suggest a cautious, data-dependent approach rather than a rush to hike. For GBP, this combination of concern about persistent inflation but reluctance to endorse the full market path of hikes implies a more measured tightening bias, which may cap upside for the currency if markets reassess the probability of multiple near-term rate increases.
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.