The Bank of England is faced with a crucial choice as it navigates a plunging currency and the effects of a new government energy cost package that has changed the inflation outlook.
"It should be no surprise then that GBP and JPY have made new multi-decade lows this week. By extension, it must be that next week's Bank of Japan and Bank of England meetings are critical for the currencies: a hawkish turn is needed to help protect both," Saravelos said., and Saravelos reiterated that the pound is "vulnerable to extreme dislocation if the Bank of England does not step up its response.
"Consistent with weaker data, we expect dissenting dovish voices to become louder following the announcement of the energy price freeze. This would call for more gradual tightening if at all," Barclays Chief U.K. Economist Fabrice Montagne said in a note Friday. Although labor shortages may stoke fears of more persistent inflation in the form of higher wage growth, and subsequently more central bank tightening at a later date, Smith contended that this doesn't have to manifest itself as a "radically higher policy rate."Emons: There could be a ripple effect through the markets as the Fed, ECB and BOE front-load their rate hikes"The swaps market is pricing a terminal rate in the region of 4.5% next year.
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