Urgent interest rate hike expected in UK after sterling's loss

Due to the sharp losses in sterling, expectations that the Bank of England (BoE) will raise interest rates before its routine meeting in November have increased.

As the pound fell to a record low on the first day of the week, expectations of an emergency interest rate hike from the Bank of England (BoE) increased. The BoE and the Treasury have not yet denied rumors of an interest rate hike. The fall of the pound against the dollar had pushed the UK currency to a historic low. Last week, the UK government announced the most comprehensive tax cuts since 1972 to stimulate the economy. There have been discussions that the tax cuts, which will be implemented in the next fiscal year, may trigger a rise in inflation. Sky News claimed that the bank could make a statement during the day.

STERLING PLUMMETED

Sterling fell 5 percent to $1.0327, below the lows seen in 1985. While the decline was sharp due to low volumes seen in Asian transactions, sterling later recovered some of its losses by rising to $ 1.05. The total loss in sterling on Friday and today was about 7 percent. The daily loss of sterling against the dollar was 2.9 percent. With the sharp decline in sterling providing support to the dollar, which is seen as a safe haven, the dollar rose to a 20-year high against other major currencies.

SHARP INTEREST RATE HIKES ARE PRICED IN

After the sharp volatility in the currency, investors' expectations that the BoE will raise interest rates urgently to stabilize the pound before its November meeting have increased. Futures markets started pricing in a rate hike of 75 basis points within a week and 150 basis points by November. Accordingly, policy rates, currently at 2.25 percent, are expected to rise to 6 percent by May. In an interview with the Financial Times last week, Finance Minister Kwasi Kwarteng said, "I am always calm. Markets always move. It is very important to stay calm and focus on the long-term strategy."

TIGHTENING CYCLE CONTINUES

At its September meeting last week, BoE announced that it raised its policy rate by 50 basis points to 2.25 percent in line with expectations. Thus, the bank raised the policy rate to the highest level since 2008. The bank had raised interest rates by 25 basis points each in February, March, May and June this year and by 50 basis points in August. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!