The Bank of England recently surprised the market with its sudden bank rate hike. The central bank surged the rate by 0.15%, taking it to 0.25%. The bank previously issued the surge three and half years back, following a sustained period of an asset-buying program and low rates.
The financial institution conducted a voting session for the decision, which won with a score of 8 to 1 in favor. Such an overwhelming win was unexpected despite the surge in the British inflation rate. The CPI recently surged to its ten-year high, reaching 5.1%, 0.3% higher than the market expected.
Despite the shrewd spike, the inflation rate is still significantly lower than in regions like the United States. A rate hike of 0.15% is relatively lower than the standard surge of 0.25%. The Bank of England understands the fact that the inflation rate has not reached historically overwhelming levels.
Moreover, the bank is not mindful of any short-term threat posed by the new virus variant. Despite the new variant boasting a severely low fatality rate, it can still cause considerable disruption in the economy. It can render morbid outcomes for the United Kingdom market, seeking weaker economic growth than the United States.
Nonetheless, the fact remains that despite the central bank not wanting to affect economic growth, a hike of 2% still exceeds the expectations. Another major reason behind the central bank’s hike was the backdrop of the FOMC policy statement.
The policy witnessed the Federal Reserve resolving to double the tapering speed winding down to conclude it before March 2022. The market was caught up with such decisions, but they still pressured the Bank of England to integrate three rate hikes in the calendar year.
The British pound surged in market value when the news came out. However, the hike was not considerable, especially seeing the pound’s ongoing bullish rally. The GBP-USD pair is currently up by 0.60%, while the EUR-GBP pair remains unchanged.
On the other hand, the GBP-JPY pair is also experiencing an urge of 0.49%. Surprisingly, the FTSE 100, the British stock market fell by 0.29%. Such price changes are not necessarily high; however, they show the market prominence of the pound.