Bank of England Likely to Increase Interest Rates Amidst Rising Inflation
The clock is ticking for mortgage holders and lenders throughout London and the entire UK. This Thursday, the Bank of England is set to make one of its most critical interest rate decisions in the past decade.
The prevailing expectation is that the Bank will escalate the borrowing cost for the thirteenth time in a row. The most probable outcome of this crucial meeting is a rise in the base borrowing cost by 25bps to 4.75%.
Financial analysts in the City are convinced that the governor of the Bank of England, Andrew Bailey, along with his eight counterparts on the Monetary Policy Committee, will be obliged to sanction this rate hike.
However, there’s mounting pressure for a more considerable hike, with some advocating for a half-point rise to 5%. The driving force behind this suggestion is the sticky inflation rate, currently hovering around 9%—a figure that’s proving to be a significant challenge for the Bank of England to steer towards its target of 2%.
Neil Shearing, the group chief economist at Capital Economics, describes the rate decision as “on a knife-edge.” Nevertheless, he anticipates a vote favouring a 5% base rate, partly owing to increased wage pressure.
“Inflation seems to have permeated the UK labour market and wage determination to a larger extent than in other places,” he added, highlighting the uniqueness of the current economic climate in the UK.
The FTSE 100 has already lost 90 points (1.2%) highlighting a risk off approach on the runup to the decision. Rate decisions offer unique opportunities to trade tactically in and around the release, with today’s (22/06/23) number splitting many investors on whether its 25bps or a 50bps.
Sell a Put
Sell a Put
Hike of 25bps
Widley expected to be the decision that is taken, markets have already priced in this hike, and we could well see markets recover after the early sell off. Selling premium into the number is a great way to profit from market volatility.
FTSE July 7250 Put @ 0.30p Credit (£300)
Buy a Put
Buy a Put
Hike of 50bps
Many commentators believe this should well be the course of action to take but worry that a 0.50bps hike could panic the markets. Buy a put you can profit from further downside if the market does indeed sell off.
FTSE July 7250 Put @ 0.30p Debit (£300)