6 April 2022 - Bank of England to slow economy

The pound failed to find any positivity in the release of a report which showed that services activity surged in March. This is being seen as a useful gauge of the market’s view that the economy will slow considerably once the effect of the withdrawal of Covid related restrictions begins to fade. Inflation is still rampant, and the likelihood is that the Bank of England will act both judiciously but aggressively to bring it down. Deputy Bank of England Governor Jon Cunliffe spoke recently of his view that the Bank may be able to moderate its programme of hikes since the rise in inflation hasn’t yet split over into wage demands. Investors believe that it is only a matter of time before wage demands rise and create a slowdown in the economy. The current view of Sterling is that the market has been too aggressive in its belief that short-term interest rates will reach 2% this year. The view is that if the economy begins to slow this month, the Bank of England may not be able to go much above 1.50% if at all. This will mean that inflation will remain uncomfortably high well into next year. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.