BoE’s Inflation Concerns Propel Pound Sterling to Soaring Heights

• Pound Sterling climbs to near 1.2700 as the BoE has kept interest rates unchanged at 5.25% as anticipated by the market participants.
• The BoE held interest rates unchanged at 5.25% for the third consecutive time but warned that further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.
• Out of the nine-member MPC-led committee, policymakers: Megan Greene, Jonathan Haskel, and Katherine Mann supported raising interest rates by quarter-to-a-percent to 5.50%.
• Easing price pressures, falling pay growth, and a shrinking economy seem supportive factors for maintaining a status quo by the BoE.
• In the three months to October, earnings excluding bonuses grew at a slower pace of 7.3% against expectations of 7.4% and the former reading of 7.8%. Wage growth is slowing but it is still high.
• UK’s headline inflation has sharply declined to 4.6% in October.
• Monthly Gross Domestic Product (GDP) contracted 0.3% in October, more than the 0.1% forecasted by markets. This is the first contraction since July. The Office for National Statistics (ONS) attributed exceptionally wet weather to the decline in GDP.
• A significant fall in Manufacturing and Industrial Production has raised concerns of a potential recession in the UK economy.
• With a sharp decline in the UK’s economic activity, BoE policymakers are expected to follow the footprints of the Fed and will discuss cutting interest rates in 2024.
• UK Chancellor Jeremy Hunt said that a sharp impact of higher interest rates on the economy was inevitable.
• The market mood favors risk-perceived assets as Jerome Powell remained surprisingly dovish while guiding further monetary policy action on Wednesday.
• The Fed lowered their core Personal Consumption Expenditure (PCE) projections for 2024 and 2025 and hinted at three rate cuts in 2024.

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