United Kingdom official bank rate; Rate hike likely amidst Subtype of the Delta variant

Official Bank Rate is the interest rate that the Bank of England (BOE) pays commercial banks for reserve account deposits. This operation provides a bulk of liquidity to the banking system as short-term interest rates are a paramount factor in currency valuation, which is highly correlated with the economic outlook because its changes can affect both inflation and recession.

In the United Kingdom, the Official Bank Rates benchmark is set by the Bank of England’s monetary policy committee whose core objective is to nurture price stability by ensuring that inflation is within the optimal range of 2% to 3% over the medium term, which will, in turn, foster employment and sustain growth.

The Bank of England has left its rates unchanged at 0.10% since March 2020 in line with the economic measures enacted to manage the downturn caused by the pandemic, however recent developments had strengthened the case for some policy tightening as inflationary pressures keep mounting, even though there is a hitting argument that the inflationary spike is transitory.

The expectation for November 3rd meeting is that the BOE will deliver a 15-basis points rate rise to 0.25% given the heightened concerns over inflation, although the risk is that the BOE will not match the hawkish expectations priced in, given that money markets are currently looking for the most aggressive tightening cycle.

The UK experienced a slight increase of the purchasing manager’s index at 57.8% from 57.7% recorded previously, as the unemployment rate was estimated at 4.5%, 0.4% points lower than the previous quarter but still 0.5% higher than the pre-pandemic level.

A subtype of the Delta variant is causing a growing number of infections in the United Kingdom, which experts believe might have a subtle effect concerning rate hike, however, Ravi Gupta, a professor of clinical microbiology at the University of Cambridge suggest that these mutations should not be of particular stating that it has been seen in other lineages of the Delta, even as daily Covid cases in England are rising once again.

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.

Economists predict UK’s GDP for 2021 to be 7.1% following the third-quarter growth of 4.8%, as many don’t expect policymakers to do a Bank of Canada’ this Thursday and end its current quantitative easing (QE) program early. 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, etc and they can be traded on the ACT brokers trading platform (https://actmarkets.com/) with the best spread and trade execution.

Time Schedule for the next UK Official Bank Rate:

Date: Thursday. June 24th, 2021.

Time: 1:00pm (GMT + 1).

Francis Idowu is a Forex Dealer, Financial market analyst and writer, Data Analyst, and Financial Market Strategist with a background in Economics. He specializes in market strategies, Forex fundamental and technical analysis, and has spent over two years as a financial market contributor, observer, and trading coach. He is well known for his informative analysis of the global economy, fiat currency, commodities, Stocks, Indexes, Futures, and Options markets. He held a Bachelor's degree in Economics and Diploma in Structured Programming and Data processing.