shine trader limited reports:
According to the interest rate futures traded on the Chicago Mercantile Exchange (CME), the contract pricing in November shows that the probability of raising interest rates next month is as high as 20%. Last week, it was thought that the probability of raising interest rates was 12%, while the contract pricing in December shows that the probability of raising interest rates at that time is 45%.
Michael Saunders, one of the most hawkish members of the Bank of England’s monetary policy committee, said in a speech on Saturday that it was right for investors to advance their bets on raising interest rates. A few hours ago, Bank of England governor Bailey warned that inflation could enter a “very harmful” period unless policymakers take action.
The bet on higher interest rates reflects growing concern about the lasting impact of the recent surge in prices, with consumers facing higher energy and commodity costs, partly due to shortages caused by the UK’s departure from the EU. Last week, the market-based measure of UK 10-year inflation rose to more than 4%, twice the Bank of England’s target.
Robert Wood, a British economist at Bank of America, said: “the Bank of England seems to be worried about the credibility of inflation. Policymakers will raise interest rates as soon as possible to avoid more interest rate increases in the future. The bank expects the Bank of England to raise interest rates by 15 basis points in December and then another 25 basis points in February, which is consistent with the market’s bet.”
Money markets believe that the Bank of England will raise interest rates by another quarter of a percentage point in August next year, bringing the key interest rate to 0.75%. Even some investors warned that higher interest rates could undermine Britain’s recovery from the epidemic.
Richard McGuire, head of interest rate strategy at Rabobank, said: “we see the Bank of England trying to avoid the threat that inflation expectations become stubborn. When we are about to enter Christmas, the Bank of England may increase borrowing costs.”
However, Peter schaffrik, global macro strategist of Royal Bank of Canada Europe Branch, pointed out that Saunders is not very representative of the whole bank of England because he is often the most extreme. Bailey’s comments are important because he also seems to support austerity.
Rising energy prices, supply chain disruptions and rising wages in some industries weakened the Bank of England’s initial view that most of the rise in prices would prove to be transitional. The central bank said last month that it expected inflation to exceed 4 per cent in the last quarter.
Reprint indicated source：Shine Trader Limited Live information