Sterling needs a truly very hawkish statement from the BoE to surge – Commerzbank

The Bank of England’s (BoE) meeting should have been held today but was postponed due to the mourning period. Market expectations have in part reached 75 bps for next week. But in the view of economists at Commerzbank, the BoE will hardly be able to deliver enough for sterling.

The conditions for sterling remain difficult

“With an inflation rate of 10%, it makes very little difference whether the key rate is 25 bps higher or not. At 2.25% or 2.50%, it remains clearly too low to send out a clear signal that at some point real interest rates might become anything but clearly negative again. The BoE would not just have to hike rates further, but inflation would also have to ease. But that won’t happen anytime soon.”

“Things are not looking good economically, the necessary rate hikes make it even more difficult for the economy. That might prevent the BoE from making a truly very hawkish statement next week. That would be required to convince the market that the BoE remains on a tightening course though, which would benefit sterling.”

“The conditions for sterling remain difficult. Even if a lot of negative news has already been priced in, I don’t think we will see more than short-term corrections.”