Rate futures are showing a 61% chance of the BOE hiking rates tomorrow now and that is up from the below 50% odds before the hot UK CPI report earlier here. The data indicated that UK inflation is at its highest since 2011 and that puts a lot of pressure on policymakers ahead of tomorrow's key decision.
As much as the odds are leaning more towards a rate hike now, I'd argue that the decision is still rather 50-50.
The biggest problem for the BOE right now is that they have to factor in omicron developments as well. Considering the situation in the UK, there is likely a case to be made for economic activity to slow.
As such, a rate hike may compound matters when the economy is stuttering. And in the battle against inflation, this almost certainly will not be their last rate hike.
I mean is 15 bps really going to make that much of a difference in bringing down inflation? Not really, especially when you consider that the root of the problems cannot be solved by monetary policy.
That puts the BOE in a rather unenviable position really. They already upset markets once last month. Will we see that happen once again despite 5% inflation in the UK? If they're not hiking this week, I would expect quite the insatiable reaction in the pound and gilts - not the good kind.
For all the talk of countering high inflation, I don't see a better time to pull the trigger. But then.. Fool me once, shame on you. Fool me twice..
