ING says rate-rise bets have supported sterling ahead of the Bank of England’s (BoE) Thursday, Nov. 5, decision, with inflation still well above the central bank’s target.
Chris Turner, ING’s global head of markets and regional head of research for the UK and Central and Eastern Europe, said Monday that interest-rate trading implied a 25-basis-point move to 4.00% from 3.75%. The BoE has not announced its decision; Turner was describing market expectations. The pound’s latest move follows earlier EconoTimes coverage of sterling before the November vote.
The Office for National Statistics (ONS) reported annual Consumer Prices Index inflation of 3.5% in September, up from 3.1% in August. Higher motor-fuel costs within transport provided the biggest upward push to the annual rate. The ONS said petrol prices were at their highest since August 2022 and diesel prices at their highest since July 2022.
At the BoE’s September meeting, three of nine Monetary Policy Committee members favored raising Bank Rate to 4%; the other six supported keeping it at 3.75%. The minutes cited the energy-price shock and the risk that higher costs could feed into wages and prices. The central bank says higher rates can raise borrowing costs while making saving more attractive.
The ONS estimated that gross domestic product grew 0.7% in the three months to August compared with the preceding three-month period; monthly output rose 0.1% in August. Turner also linked sterling’s strength to high energy costs, stronger-than-expected economic news, fiscal policy and closer ties between the UK and European Union.
A Commodity Futures Trading Commission (CFTC) report showed noncommercial traders in CME British-pound futures held 79,414 more short than long contracts on Oct. 27. The tally covers those reported futures positions, not the entire currency market; the report listed 136,059 short contracts and 56,645 long.
For households and businesses, higher rates can mean greater borrowing costs, while savers may find saving more attractive, according to the BoE. In a separate preview, ING said markets had priced more than 100 basis points of increases across the broader policy path and called that pricing extreme. The BoE is due to announce its decision and publish its November Monetary Policy Report Thursday, Nov. 5.
