Good for the pound! Trading MT4.MT5 GBP Trend Forecast

On July 6, Bank of England chief economist Huw Pill said he was ready to vote for a faster rate hike if he saw further signs that inflation was taking root in the UK.

 

Speaking at King's College and Qatar Centre, Pill said his and the MPC's focus remained on bringing inflation back to its 2 percent target by raising interest rates. If data shows companies are intent on raising prices and workers are successful in negotiating wage increases, the case for Britain's faster pace of rate hikes will become clear.

 

He warned that inflation risks would be entrenched as higher energy prices lead to "secondary effects" such as wage demands and corporate price hikes. Price setters and wage bargainers in the UK will try to offset the impact of rising headline inflation on their real purchasing power by seeking higher profit margins or higher wages in order to maintain real incomes.

 

"The point is that this could create a more persistent inflationary picture in the UK," he added.

 

It is through this second-round effect that the current higher inflation is embedded in the inflation process and achieves a self-sustaining momentum, thus requiring the Bank of England to act by raising interest rates.

 

The UK inflation rate reached 9.1% in May, and the Bank of England's June update showed that inflation will peak at nearly 11% in October. When the Bank of England released its latest data in June, it said it would raise interest rates by a further 25 basis points. - If it sees signs that inflationary pressures are becoming more persistent, it will take "strong" action.

 

"We think the BoE is now more likely to raise rates by 50 basis points in August," said Christopher Graham, European economist at Standard Chartered.

 

Graham also said: "We think the September meeting will be a thrilling meeting, but overall still expect a 25 basis point rate hike. However, this view is based on our expectation of overall growth by then. Data will show signs of a further slowdown, and labor market data will start to show an inflection point."

 

He said any unexpected rise in labor market or inflation expectations could prompt the Bank of England to raise rates by another 50 basis points.