Here’s a look back at the near-term impact of BoE interest rate decisions

There’s more at stake than an interest-rate hike at next month’s Bank of England meeting, giving traders extra reason to correctly call the decision from the increasingly unpredictable central bank.

Interest rate decisions by the BoE (not the expectations placed beforehand) often only have a short-term effect after the announcement. About 3 days, depending on the scope and potential for surprises. At the moment, the increase seems large.

USD should provide a greater impact. There may be a short-term rebound there after the USD’s sharp run higher over the past few days. Also the dollar is in its strongest position for weeks which indicates a clear downside movement for GBP/USD.

About the rates, Increases in interest rates could be less necessary and also have negative effects for some matrices, which is often a feat. The labor market should be calm and it should really be possible to fight inflation with interest rate hikes. The demand for credit must not be stifled.

Nor is it enough to view rising inflation as a monolithic bloc. What exactly became more expensive for the working masses and may remain expensive? The urgently needed or anything they can’t afford or need anyway. Will they benefit from the higher interest rates? What steering force do taxes bring about?

Last but not least, quantitative easing was not touched upon with the last rate hike. This is supposed to happen now. Liquidity is now being withdrawn from the market.

If it pulls the trigger and raises interest rates to 0.5%, that would be the first back-to-back hikes since 2004. It also opens the door for the BOE to start reducing its record balance sheet by stopping the reinvestment of expired bonds. That would affect 28 billion pounds ($38 billion) of gilts maturing in March.

But while rate increases are a known quantity, so-called quantitative tightening is uncharted territory.

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