In worrying times like this, it is important for us to point out that we completely acknowledge the wider implications of international conflict. Our principle duty as a company is to ensure that our clients are aware of all of the factors that affect currency exchange rates, which sadly sometimes includes war. Our thoughts are with everyone who is being affected by this escalating situation, and our currency updates do not intend to diminish, ignore or undermine the true impacts of this conflict.

The pound fell off its daily high after comments by Bank of England deputy governor Ben Broadbent. Broadbent spoke about the rise in UK inflation, which could reach up to 9% due to the surge in energy prices.

Ben Broadbent’s comments

Speaking at a conference at Gresham College in London, organised by the National Institute of Economic and Social Research and The Money Macro and Finance Society, the Deputy Governor of the BoE highlighted the risks of inflation which has been exacerbated by the war in Ukraine. He said: “From an economic perspective, coming on top of what was already a very steep rise in the cost of globally traded goods, in the wake of the pandemic, the invasion has led to substantial rises in the cost of energy and other commodities. As a big net importer of manufacturers and commodities, it’s doubtful that the UK has ever experienced an external hit to real national income on this scale. From the narrow perspective of monetary policy, it will result in the near term in the difficult combination of even higher inflation but weaker domestic demand and output growth.”

His comments come after the Bank’s Governor Andrew Bailey said that the UK is facing an energy price shock last seen in the 1970s. On Wednesday, Broadbent also referred to the “unpredictable shocks hitting the economy” and that “the appropriate path of interest rates is necessarily unpredictable as well.”

Household bills could rise to £2,500 by autumn

According to the influential forecasting group, EY Item Club (EYIC), normal household energy bills could rise up to £2,500 by autumn. The increase in energy and commodity prices partly the result of the war in Ukraine, will have a serious effect on households and slowdown economic activity. EY Item Club says that rising prices will add to UK inflation which is already at very high levels and predicts that inflation could peak at a 40-year high of 8.5% in April with prices growing by 6% at the end of 2022. The group has warned that the 54% rise in home energy bills this April means that lower-income households could experience an inflation rate of around 10%.

With more energy bill increases expected in October, the EYIC says lower-income households will have to deal with steadily higher levels of inflation relative to higher-income households, that could last beyond 2023. Chief economic adviser to the EYIC, Martin Beck, said that, while the recent Spring Statement included some help for households, consumers will experience the pain of inflation and a squeeze to real incomes: “Consumer spending is a key part of the UK economy, and the expectation has been that the passing of the worst of the pandemic would spur a corresponding consumer recovery. But the war in Ukraine and rising energy prices mean that outlook has dimmed.”

It is already noticeable that “UK shoppers are choosing to shop at discount supermarkets in greater numbers as grocery price inflation reaches its highest level in a decade amid a mounting cost of living crisis.”

Food price inflation, increased by the rising cost of such commodities as wheat and cooking oil has forced shoppers to change their habits and seek ways to save on basic necessities.

The UK’s poorest families are also expected to see the amount of spare cash fall by a fifth this year with £850 less to spend on non-essential items. According to the latest figures from market analysts Kantar, prices are rising the fastest for pet food and savoury snacks but continue to fall for some products such as fresh bacon. Price rises are also increasing due to the rising cost of labour and basic commodities, driven by a combination of Brexit, rising demand after the pandemic and the war in Ukraine.

The pound was resilient against the US dollar and has risen to two-month highs. Last week it hit a 22-month high against the euro as the potential for more hikes by the Bank of England (BoE) offered support. Omicron concerns have eaten away at some of the pound’s gains against the euro.

The prospect of a BoE interest rate hike at the Bank’s February meeting has helped boost market expectations.

UK Prime Minister looking to reduce quarantine period

British Prime Minister Boris Johnson said on Monday that the government is considering the prospect of reducing the quarantine period from seven to five days. Since Britain was making progress against the variant, the government will look at reducing the days of isolation, but it warned that the number of hospitalised people was rising. The Prime Minister explained that "We've got to make sure that we see off Omicron. We're making great progress. (But) the 18,000 people with COVID currently in hospital... that's massively up, and the numbers are increasing.”

His comments did not have a noticeable impact on the pound.

UK companies remain optimistic

The latest survey from accountancy company Deloitte has showed that 37% of chief financial officers are planning to boost investment in 2022 and focus on growth despite Omicron concerns. Companies expect conditions and productivity to improve but persistent labour shortages remain a considerable risk. A high number of companies believe that trade conditions have been affected by Brexit.         

Brexit concerns

Manufacturers have warned that Brexit will exacerbate costs amid concerns of persistent challenges relating to customs delays and red tape. Make UK, which represents 20,000 manufacturing firms across the UK has said that Brexit remains a central concern. In its 2022 Make UK/PwC senior executive survey of 228 firms, businesses have warned of damage from Brexit disruption which has been further complicated by the pandemic and rising costs.

GBP/EUR hits a 22-month high

Last week’s positive market sentiment favoured risk sensitive currencies such as the pound and pushed the euro lower. The euro was also lower due to the significant differences in policies by the UK and European central banks. Eurozone data did not help offer any support.

The pound rose further following the UK government’s decision not to introduce more Covid restrictions while BoE rate hike expectations boosted Sterling. Traders have now priced in an 82.5% chance of another interest rate rise at the bank’s meeting in February.

However, the rising number of Covid cases puts further pressure on the pound which has failed to sustain its 22-month high.

Week ahead: What to expect

Omicron will continue to impact on the British currency. If Covid cases continue to fall, then the pound will strengthen and vice versa.  

On Friday, we get the latest GDP data, which is expected to have grown 0.4% in November and may help offer support to the pound.

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The pound rose on Wednesday following Boris Johnson’s announcement on Tuesday night that the government won’t be introducing new Covid restrictions before Christmas. Sterling was up against the US dollar and the euro. The prospect of new restrictions to contain Omicron, and the drop in trading at hospitality firms and retailers, had pushed the pound lower over the recent weeks.

No new restrictions before Christmas

Boris Johnson has confirmed that Christmas will go ahead without any restrictions on socialising, but this has sparked criticism that this decision will only lead to stricter measures later. The Prime Minister said that he recognised that families across England required certainty to spend Christmas with their families, but he explained that restrictions could still be imposed after 25 December because of the rapid spread of the Omicron variant.

The Prime Minister’s Christmas decision was different than the ones by the Scottish and Welsh governments. On Tuesday, Scotland said that Hogmanay street parties will be cancelled, while Wales announced £60 fines for employees who refused to work from home.

The number of reported Covid cases across the UK fell on Tuesday raising hopes that the recent surge may be starting to level, as there were 90,629 confirmed cases on Tuesday compared to Friday’s 93,045.

In a short video on Tuesday night, Boris Johnson said the situation with Omicron “remains extremely difficult but I also recognise that people have been waiting to hear whether their Christmas plans are going to be affected. So what I can say tonight is that naturally we can’t rule out any further measures after Christmas – and we’re going to keep a constant eye on the data, and we’ll do whatever it takes to protect public health. But in view of the continuing uncertainty about several things – the severity of Omicron, uncertainty about the hospitalisation rate or the impact of the vaccine rollout or the boosters, we don’t think today that there is enough evidence to justify any tougher measures before Christmas.”

Factors impacting on Sterling

As the Prime Minister noted, the possibility of new restrictions cannot be ruled out and will remain a headwind for the pound. This factor, combined with other reasons has limited the pound’s upside potential. The situation in the UK due to the rising number of Covid-19 cases, the potential of new restrictions next week and Brexit tensions have kept traders from buying the pound and limited any meaningful upside for the GBP/USD pair.

On the Brexit front, the UK Foreign Minister Liz Truss, who is now responsible for the Brexit negotiations, said that the UK’s position on the Northern Ireland Protocol remains unchanged. She added that the UK is prepared to trigger Article 16 if the role of the European Court of Justice as a final mediator in dispute-resolution in Northern Ireland is not reduced. Truss, who has taken over after Lord David Frost’s departure on Saturday, is seen by the EU as a more friendly and engaging counterpart. Frost’s resignation was met with relief by EU officials according to Politico. The former Brexit minister was criticised for its anti-EU, libertarian ideology. The bloc now hopes that Truss will be more determined to finish the talks on the protocol and focus on the relationship with the EU, countering Russia in Eastern Europe and the cyberspace.

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The pound has risen against the euro and some economists anticipate further gains as market expectations for a Bank of England interest rate rise in December have grown even stronger. Over the weekend, Bank of England (BOE) Governor Andrew Bailey said that inflation could be "elevated for longer" but there was also a chance that it is not as persistent as initially feared. The comments have not had an impact on the market yet. According to other analysts, any potential upside for the pound might be limited or stalled due to a stronger US dollar and persistent Brexit worries.

Pound to euro exchange rate

The pound managed to enter the new week with forte and despite a stronger US dollar, as the euro declined following last week’s news that Austria and the Netherlands were reinstating a form of “lockdown.” The news of a potential lockdown has created concerns for the Eurozone economic outlook in the short-term and the single currency. Additionally, it has reignited concerns of new lockdown restrictions in other European countries.

The pound to euro exchange rate will remain sensitive to any news over the coming days about other European economies following Austria’s and the Netherlands’ new coronavirus-related restrictions.

The pound has strengthened against the euro following October’s inflation figures and the latest UK employment data. Additionally, last week’s parliamentary testimonies by members of the Bank of England have helped support the case for a December interest rate rise.

The strong labour market release has assured markets that a rate rise at December’s MPC meeting is very much a possibility. If this is repeated in next month’s release, due to be out two days before the MPC’s decision, could be enough to result in a rate hike before Christmas.

Analysts believe that the differences between the Bank of England’s and the European Central Bank’s monetary policies might be enough reason for the pound to rise against the euro. The BoE is open to the prospect of a rate hike, whereas the ECB is still on hold.

What to expect the week ahead

  • Bank of England

BoE Governor Andrew Bailey and other members of the Monetary Policy Committee will be speaking at various events throughout the week, with Tuesday’s talk on inflation from Jonathan Haskel at the Adam Smith Business School in Glasgow and chief economist Huw Pill’s appearance on Friday at an online Confederation of British Industry event.

  • Brexit

On Sunday, the European Commission vice-president Maroš Šefčovič has urged UK’s Brexit minister David Frost to end his “political posturing” in relation to the negotiations on the Northern Ireland protocol and accept that he cannot change Brexit. Lord Frost demanded “more urgency” so the dispute can be resolved but their comments demonstrate that both sides remain far apart.

Šefčovič told BBC One’s The Andrew Marr Show that he did not expect Frost’s call for urgency because “sometimes I have the feeling that in our meetings I’m the only one who pushes for urgent solutions”.

 

In an article in the Mail on Sunday, Frost explained that the EU’s “solutions don’t deal with the problems”, and that goods “which both we and the EU agree aren’t going to leave Northern Ireland should not be treated as if they were moving from one country to another – because they are not,” he said. “But at the moment the EU says it is impossible. I urge them to think again.”

Frost’s comments suggest that both sides remain firm in their positions and that triggering article 16 remains a possibility.

France’s fishing row with Britain has also added to the tensions, following France’s Minister for European Affairs Clement Beaune’s tweet on Sunday: “I will be in Brussels tomorrow to continue this essential negotiation for France and the EU. Our objective has not changed: to enforce the agreement, to obtain our licences, to defend the interests of our fishermen.” His comments reflect the French president’s remarks who accused the UK of “playing with our nerves" on the issue. Speaking on Sunday, Macron said: “We are going to continue to fight, we will not abandon our fishermen.”

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A potential break down in relationships between the UK and EU could risk affecting economic recovery and hurt the pound. The possible decision of Britain to suspend the Northern Ireland part of the Brexit deal could weigh on the pound. According to Bloomberg, “The UK warned the European Union not to start a trade war if Boris Johnson’s government suspends part of the Brexit settlement over Northern Ireland, saying a strong retaliation would exacerbate problems.” Additional concerns such as Covid and supply chain issues that could deter the Bank of England from raising interest rates may also affect the British currency.

Boris Johnson to avoid a confrontation with Brussels

Boris Johnson does not want a confrontation with Brussels. The UK is already dealing with enough problems including increasing costs of living, rising inflation and energy prices.

As the Financial Times noted, the PM wants to avoid a trade war with the EU and have a quiet Christmas following last year’s cancellation of Christmas festivities due to Covid.

In last week’s Global Britain (Strategy) committee meeting to discuss Brexit concerns, senior cabinet ministers analysed the political tensions between Britain and the EU and the dispute over trade in Northern Ireland.

Rishi Sunak, chancellor of the exchequer, warned that entering a trade dispute in regard to the Northern Ireland protocol would create problems, especially as Christmas is coming up.  To avoid any confrontation with Brussels, Johnson asked chief negotiator Lord David Frost to return to discussions with Brussels and try to resolve the dispute over Northern Ireland.

The shift in tone is intended to provide the necessary space so that negotiators can try to resolve the Northern Ireland dispute and to start repairing UK-EU relations.

Brexit is already affecting Britain economically. The Office for Budget Responsibility said last month that Brexit’s long-term effects on the British economy will be twice that of the Covid pandemic. The OBR believes that total UK imports and exports would “eventually be 15 per cent lower than had we stayed in the EU”.

Pound to rise further, analyst argues

Despite above risks, the recent gains of the pound due to higher inflation data and a strong jobs report appear to further lend support to hedge fund analyst Savvas Savouri’s argument that the pound will post more gains. Savouri believes that the pound will rise further due to the economic backdrop, potential higher interest rates and increased demand for the pound from China.

According to Pound Sterling Live, Savouri said that "Sterling is poised to gap-up impressively for several reasons, including the strong UK economic backdrop, a sensible and sustained rise in the bank rate, and a potentially larger weighting in the currency basket of the People’s Bank of China.”

Because of Brexit, Savouri says the pound continues to be valued much lower and is cheap according to his view. Savouri has argued that the pound will do what it did back in 1996: “after four years of weakness following its shock ERM exit in September 1992, the pound gaped-up impressively."

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The pound fell early on Friday before strengthening, while the US dollar grew stronger. The British currency’s performance will depend on Brexit developments, but the dollar is expected to remain strong on expectations of a Federal Reserve rate hike by June 2022.

In regard to Brexit, Ireland’s Foreign Minister Simon Coveney said on Thursday that there is still time for a solution to Brexit's Northern Ireland protocol. The European Union is also planning to improve its offer to reduce customs checks at the Northern Ireland border.

In the coming weeks, Brexit minister David Frost will engage in intensive talks with the EU to reach an agreement. These positive developments have not yet impacted on the pound, but it will depend on investors’ focus as they turn away from Central Banks’ policies towards Brexit.

Brexit impact could be limited

Brexit anxieties have an immediate effect on the value of the UK currency and the possibility of the UK triggering Article 16 or any deterioration of the EU-UK relations could have a considerable impact.

Sterling may suffer if the European Union retaliates after a possible triggering of Article 16. However, economists believe that the negative impact of Brexit has been mostly price in the pound, so the effect of Brexit might not be as damaging to the currency as some analysts have suggested.

Also, as some other analysts have noted, any deterioration of the relationships or a suspension of the trade deal might not have significant economic effect. As ING’s James Smith and Chris Turner noted, “none of this necessary spells disaster for the pound.” They clarified that “much of the cost burden associated with Brexit comes from form-filling and customs processes, which are already in place. To qualify for zero tariffs under the current deal, companies need to prove that their products have sufficient EU or UK content to qualify, which can be very expensive in itself. In some instances where tariffs are low, it may already simply be easier to pay a tariff than document a supply chain.” They believe that any “additional economic effect of reverting to ‘no deal’ on top of that may not be as considerable as perhaps supposed.” For them, Brexit tensions will not change the Bank’s intension to hike rates, perhaps more gradually than markets initially expected. ING analysts highlighted that more crucial factors for the Bank remain the labour market and labour shortages.

How will the pound fare?

There is a possibility that the trade agreement could be suspended, but this will require further negotiations. The effect of leaving the single market and customs union last year was the major event, and economists argue that anything else happening now might not be as damaging for Sterling.

Obviously, increased uncertainty will hurt markets, but for some analysts this is not going to be as bad for Sterling as some have stated.

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Tensions between the EU and Britain over the Protocol on Ireland/Northern Ireland could create potential headwinds to the British currency. The pound fell last week following the Bank of England's decision to keep interest rates unchanged, and markets are now putting their hopes on a February hike. However, any upside potential will be hindered if the EU and the UK do not resolve their disagreement. Already, the EU has issued warnings if the UK triggers Article 16 of the Irish Protocol, while fears of a trade war between the two are growing stronger.

On Wednesday morning, Tánaiste Leo Varadkar warned British prime minister Boris Johnson that triggering Article 16 would be a “very aggressive and bombastic move” and noted that the UK will not end up with a better deal by doing so. Varadkar said: “The message I’d send to Boris Johnson is that we have an agreement in relation to Northern Ireland, we have an agreement in relation to trade with the European Union - don’t jeopardise it.” He added: “You were part of negotiating it, you own it, it was hard won, it’s a mistake to think that by escalating tensions or by trying to withdraw from any part of it, that you’ll end up with a better deal: you won’t.” Triggering Article 16 would allow the UK to suspend all, or part, of the treaty and will undo the Brexit deal resulting in the collapse of relationships.

Foreign exchange markets could build a premium into Sterling exchange rates as uncertainties over the future trading relationship between the UK and EU continue, posing considerable risks to the currency.

What is Article 16?

Article 16 is a clause in the Protocol on Ireland/Northern Ireland, which is an important part of the Withdrawal Agreement. The Protocol was created in order to avoid a hard border between British-ruled Northern Ireland and EU member Ireland by introducing some checks on the movement of goods to Northern Ireland from mainland Britain. Article 16 allows the UK or the EU to take action if they believe the Protocol will lead to "serious economic, societal or environmental difficulties."

The EU has cautioned Britain that triggering Article 16 would hurt relationships with the EU and destabilise Northern Ireland. By reopening the Protocol will create further complications regarding peace in Northern Ireland and protecting the EU's single market.

Brexit troubles will hurt the pound

The tensions between the EU and the UK and the prospect of a trade war over Northern Ireland will create potential risks to the pound. Financial analysts and strategists are cautious and believe the pound will trade with a more defensive tone as markets expect the UK government to trigger Article 16 of the Northern Ireland Protocol during the second half of November.

Markets will also be watching Friday’s meeting between the chief negotiators David Frost and Maroš Šefčovič.

Brussels Correspondent for BBC News, Jessica Parker, has reported that according to an EU diplomat the talks are rumoured to have been "extremely bad".

A worst-case scenario for the Pound would be the complete termination of the post-Brexit trade agreement, but this will be unexpected and a very extreme scenario. More likely, the EU could trigger legal proceedings and potentially impose tariffs on certain goods.

 

 

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The pound has been lifted from its lows after the Bank of England disappointed markets by keeping interest rates unchanged. On Tuesday, the pound was higher as investors are now focusing on a February rate rise.

While speaking at a virtual event organised by the Bank of England (BoE), Governor Andrew Bailey stressed that they will have to act and raise rates if they see a clear indication that higher inflation is feeding into wages. His comments did not impact on the market pricing of a rate hike in December. The CME Group's BoE Watch Tool shows a 67.5% chance of a 20-basis points rate hike before the end of the year.

In terms of Brexit, the ball is now in the UK’s court. After the EU clarified that they will act accordingly if Britain were to trigger Article 16, they are now waiting for the UK to make the next move.

Economic growth and Bank of England

The Bank of England’s dovish turn and less aggressive policy is in line with market data and suggests that their interest rate decision was made based on a more restrained and conservative economic growth outlook. The Bank lowered its 2021 growth forecast to 6.7% from August’s 8.5% forecast but raised the 2022 GDP forecast from 2.3% to 2.9%. 2023's forecast has been lowered to 1.1% from 1.3% that it was previously.

Inflation

Inflation is expected to go over the 2.0% target in the coming months and the Bank could act by raising interest rates if it deems appropriate. Bank of England Chief Economist Huw Pill said on Friday Nov. 05 that he believes the pace of wage inflation will surpass both those of the Eurozone and the US.

A more measured Bank means that there are less risks for early tightening, especially if inflation proves to be transitory. This will also support economic growth and households which are already struggling with higher costs.

Economists do believe that the Bank of England will still raise interest rates to fight inflation in the near future, as they expect hikes in December and February.

Other possible factors to consider for pound volatility

  • As a procyclical currency, the pound goes up when global stock markets are strong and falls when they fall. If the pound weakens it is usually against stronger safe havens such as the US dollar, the yen and the franc. For now, market sentiment is positive, and this has given fresh impetus to the pound.
  • Brexit tensions are growing, and this could potentially impact the pound. Ireland’s foreign minister Simon Coveney warned that the EU-UK Trade and Cooperation Agreement could be dismissed if the UK triggers Article 16 and rewrite the protocol on Northern Ireland. The protocol, which is part of the EU-UK withdrawal agreement, was agreed in order to avoid a north-south trade border on the island of Ireland. Protestant Unionist parties have rejected the agreement, and two buses were set on fire in the past week. If the UK fails to maintain a border in the Irish Sea, then this will threaten Ireland’s economic rights as an EU member and it will be unacceptable by the 26 EU member states. Without a border, animal and plant products will enter the EU single market, without full legal controls. Ireland’s goods won’t be trusted, and checks will possibly be required in order to enter the EU. Markets will await any updates on Friday, following the EU and UK's chief negotiators meeting this week.

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The pound has fallen since last week’s Bank of England (BoE) monetary policy decision to leave the Bank rate unchanged at 0.10%. While it is expected to stabilise the following days, analysts do not anticipate considerable gains for the pound in the near term.

The BoE’s decision to keep monetary policy unchanged took markets by surprise but it chimed with members of the Monetary Policy Committee comments that the Bank wanted to wait and see further evidence about the state of the economy and the health of the labour market, especially the impact of the furlough scheme which ended in September. Analysts still expect a February rate increase instead of one in December.

Possible interest rate rise

The BoE wants to wait and analyse the impact that the end of the furlough scheme will have on the economy, and employment in particular, before making any decisions on raising interest rates. Some of the data will become available in December and more later in January and February. This is why the November interest rate rise was too soon, whereas other ones in December, February 2022 or some time later, appear to be more likely possibilities.

Before the next Bank of England meeting on the 16th of December, analysts and policymakers will have the chance to examine two jobs reports and two inflation reports, which will determine how the Bank will act if there is to be a 15bp December hike. Since markets have not yet priced in a December move, there could be potential for Sterling to rise.

Pound outlook

Analysts believe that there is still potential for the pound as markets digest the news and adjust to a less aggressive policy response in the next meetings.

At the same time, for inflation to return to a target that will be within expectations, the Bank rate will need to rise. The Governor of the Bank of England, Andrew Bailey, said that the BoE would not raise rates to 1 per cent by the end of 2022, because according to the bank’s forecasts inflation would fall below its 2 per cent target in the medium term if they tightened monetary policy too much. Higher inflation is expected to be transitory, leading to an increase in consumer prices, which would have been higher if interest rates rose even a little. The Bank, however, does not expect inflation to fall below 3 per cent until the spring of 2023, which means there will be a period of higher inflation.

Brexit

Brexit is adding some pressure on the pound at the beginning of this week, as reports that the UK is preparing to trigger Article 16 of the Northern Ireland Protocol are growing. Senior Government and EU figures have held discussions to prepare on the possibility of the UK triggering article 16 of the Northern Ireland protocol, a move that both Dublin and Brussels expect in the coming weeks. The move could create a crisis in EU-UK relations. Minister for Foreign Affairs Simon Coveney said that the EU could retaliate by withdrawing the entire free trade and co-operation agreement, reigniting fears of a “no-deal Brexit” and tariffs on trade.

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The pound rose on Tuesday against both the euro and the US dollar, as stock markets increased, and expectations for an early November rate hike by the Bank of England remained strong. This is the highest level since the pandemic started in March 2020. If the Bank of England proceeds to an early rate hike, then markets will not be disappointed and the pound will rise further, as many analysts suggested. However, if it strikes a more cautious tone and reduces expectations for further rate hikes in 2022, then the pound could fall.

A hawkish statement by the Bank of England suggesting a faster cycle of hikes than is currently expected might boost the pound further, but this is not anticipated.

Interest rates

If the Bank of England raises interest rates as soon as the 4th of November, then the UK central bank will be the first major central bank to raise rates ahead even of the European Central Bank (ECB). The pound rose against the dollar, but the gains were not substantial as the US Federal Reserve is on target to raise interest rates in 2022 with the November policy meeting likely to confirm this.

The lower number of Covid-19 cases has helped boost market sentiment and has given the Bank of England further evidence that the economy has the potential to grow as we come to the end of the year.

Current and potential obstacles

However, Britain's weak economic data, such as Friday's unexpected drop in retail sales has capped further gains. UK growth momentum is also weakening. There are also concerns about potential tax hikes that could be announced on Wednesday's budget statement, alongside tensions between the EU and the UK post-Brexit provisions relating to the trade between Britain, Northern Ireland, and the European Union member Ireland.

A possible headwind for the pound is the failure of the negotiations between the two sides over the Northern Ireland protocol, as Britain has threatened to take unilateral action if talks fail. #

Rishi Sunak’s budget announcement on Wednesday

Traders are now awaiting finance minister Rishi Sunak's budget statement on Wednesday. Markets might be already aware of his plans for higher corporation tax and national insurance contributions, but the devil is in the details. He is expected to end the public sector pay freeze for millions of workers and there has been speculation that the minimum wage for those aged 25-plus could increase from £8.91 an hour to £10 before the next election. For the NHS, there have also been announcements for a £5.9bn for NHS backlogs, diagnostic services and elective surgeries funding, while a £2.1bn is going to improve IT across the NHS. Another commitment has been for £5bn on health research and development over three years. A total of £850m has been promised to inject new life into the arts as a “post-pandemic funding boost.” £700m has been promised to be spent on the new post-Brexit borders and immigration system, and a new maritime patrol fleet. Among his other pledges, is a six-month extension to the COVID recovery loan scheme to June 2022.

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