Is The Economy Fragile For The United Kingdom Official Bank Rate Increase? Pound Sterling (GBP) Dips.
21st September 2021.
Official Bank Rate is the interest rate that the Bank of England (BOE) pays commercial banks for reserve account deposits. It is also called the Bank of England Base Rate (BOEB). This operation provides a bulk of liquidity to the banking system.
Short-term interest rates are a paramount factor in currency valuation. This is highly correlated with the economic outlook because its changes can affect both inflation and recession.
For decades, the Bank of England has utilized the official bank Rate as its mechanism to achieve the dual mandate of controlling inflation within the optimal range, maintaining price stability, and keeping employment near its maximum sustainable level as defined in the Remit.
In its monetary policy review meeting in August, it maintained a mix of a dovish and hawkish tone. The session created huge market volatility as risk sentiment soar to the upside but conclusively swung its pendulum to the dovish lane leaving its bank rate relatively low and unchanged at 0.10% till full recovery is seen.
According to a Bloomberg respondent, Jane Foley, tapering speculation is likely to be pushed to the year 2022. Though inflation is currently elevated above 3% and could hit the 4% threshold, but there is a hitting argument that it is transitory. Its quantitative easing program and asset purchase target of 895 billion euro will still be elongated. In broad-base, Covid-19 delta variant and Job market deficit means the Bank of England will keep the policy rate unchanged, but if inflation stays put and the growth keeps elevating, the quantitative easing tapering will begin followed by the rate increase.
Furthermore, the United Kingdom experienced an immense level of service output growth in August as restrictions eased up. The Purchasing Manager’s Index surged 60.3 and Manufacturing peaked at a 29-year high, driven by the flash flow of new orders.
Currently, Covid-19 infection and hospitalization rates have fallen massively across the United Kingdom and the vaccination program is progressing at a rapid pace, though the Covid delta variant stood as constrain. Lately, its unemployment was highest in England at 5%, followed by 4.4% in Scotland, 4.8% in Wales, and 3.7% in Northern Ireland, the lowest rate among the four countries in the UK.
Across-board, Lower Official Bank Rate will provide a boost to the broader economy by improving cash flow, encouraging spending and investment, which will increase economic activity and boost employment.
Regardless, traders should brace themselves up for a period of high volatility as Official Bank Rate reports often have a great impact on the FOREX market. An increase in Official Bank Rate will usually strengthen the Pound sterling (GBP), while its decrease will usually weaken the Pound sterling (GBP)).
Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on. The currency pairs that include the GBP (British Pound) are mostly affected by the data release. The pairs include GBPUSD, GBPAUD, GBPCAD, GBPCHF, GBPCZK, EURGBP, GBPJPY, GBPNOK, GBPNZD, GBPTRY, GBPZAR, The UK Stocks, Commodities and
Time Schedule for the next UK Official Bank Rate:
Date: Thursday. 23rd September 2021.
Time: 12:00pm (GMT + 1).
Author: Amogo Solomon
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