- Interest rates to rise in 2022, boosting Sterling.
- Hard data remains key in Q4.
The era of UK Quantitative Easing (QE) is coming to an end and the Bank of England (BoE) may well start increasing interest rates in early 2022 as inflation begins to stalk the UK economy. The UK central bank will finish its GBP[1] 895 billion bond-buying spree by the end of this year, effectively tightening monetary conditions and setting the course for higher UK interest rates in 2022. QE was introduced in response to the global financial crisis of 2009, with the original size of GBP200 billion increased a total of five times over the next 11 years to its current total. The bond-buying program effectively lowered UK interest rates due to it adding liquidity into the system, and the reverse now looks likely when the program ends. Money markets are currently pricing in a 15 basis point interest rate hike by Q1 2022 and another hike of 25 basis points during the rest of the year. It now looks as though the Bank of England will be one of the first major central banks to raise interest rates, underpinning Sterling.
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The UK economy is in a tricky spot right now, with growth stalling due to the remnants of the Covid-19 lockdowns flushing through the system, while supply bottlenecks are becoming frequently cited by businesses across the country. And with price pressures on the rise, the dreaded word ‘Stagflation’ is starting to make an unwelcome comeback. Annual UK inflation is currently running at 3.2%, above target, and is expected to hit in excess of 4% in Q4 before fading back to target. However, as has been
