UK Inflation Surge Puts Pressure On Bank Of England
Neil Wilson | Dec 15, 2021 09:19
If you were angry the Bank of England didn’t raise interest rates last month, you’ll be absolutely livid they don’t do it again tomorrow. Inflation in the UK has surged to a decade-high 5.1%, outpacing fairly steep expectations. Whilst the CPI figure is high the RPI, arguably a better test of the true costs to most consumers, surged to 7.1%, the highest level in 30 years. Combine this with the fact job vacancies are at a record high 1.21m - evidence that the labour market is extremely hot - you have to wonder what on earth is stopping the Monetary Policy Committee from pulling the trigger. Of course the answer last month was they wanted more data on the labour market. Tomorrow it will be omicron. There is always an excuse for inaction.
Even the IMF agrees. Yesterday it warned the Bank of England should not delay withdrawing pandemic-era support by raising rates as inflation is set to top 5.5% next year. The fund urged the BoE to avoid ‘inaction bias’, which we might characterise and the kind of sit-on-your-hands-an-do-nothing complacency that seems to mark out Andrew Bailey’s tenure. The economy is strong, omicron will be a passing fad, the employment market is tight and inflation is super strong – to not hike on Thursday would display a degree of lethargy and wilful disregard for the facts that will hurt the economy and ordinary people. The Bank seems destined to suffer from this inaction bias and the inflation data only puts that into starker relief.
Nevertheless, even if the BoE does not hike tomorrow – and it still could – there is plenty of hawkish noises it can make about next year to help sterling gather itself off the floor. The pound ticked higher on the inflation data, with GBPUSD advancing to its highest since Friday – as suggested this week there are signs the sellers are cleared out for the time being and we could see a short-term reversal towards the middle of the channel, though the double hit of the Fed and BoE this week makes calling it a tough one.
Across the pond, the Fed wraps up its two-day meeting today with the statement and press conference this evening. The hawkish pivot has already been done in a series of public statements, so there ought not to be too many surprises. We are expecting the FOMC to announce a swifter pace of taper – up to $30bn monthly to get it out of the way in Q1 and provide the optionality to get on with hikes. There is likely going to be coalescence around at least 2 hikes in 2022 – remember the September dot plot showed policymakers evenly split between the first hike in 2022 or 2022. I’d expect much more consensus around 2022 for lift-off and for there to be a majority favouring a minimum of two hikes next year – bringing it into line with the broad market consensus.
Get The App
European stock markets are mixed this morning and remain on the defensive this week after falling in the last two sessions. The FTSE 100 again declined despite an upbeat open on Tuesday, mirroring moves on the continent. Wall Street was also lower again, dragged down by tech. Microsoft (NASDAQ:MSFT) and Adobe (NASDAQ:ADBE) were among the biggest fallers. Apple (NASDAQ:AAPL) down again and now $8 off the $3tn market cap level we were talking about on Monday. The Dow Jones closed down 0.3%, the S&P 500 fell 0.75% and the Nasdaq declined 1.14%. Risk sentiment dealing with the twin and largely still not understood threats of omicron and CB tightening.
Gold is headed towards the bottom of the recent range ahead of the Fed decision.
Oil also rolling over a bit as risk takes a knock, with WTI testing $70.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.