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Economists at Commerzbank analyze the Bank of England’s (BoE) policy outlook and its implications for the pound sterling (GBP).
Fears of a UK recession:
The Bank of England’s hesitation for so long means that tighter monetary policy will eventually be necessary to anchor inflation expectations and limit second-round effects, which could put strong pressure on the economy.
So, on the one hand, the more hawkish approach from the BoE – which has certainly been the central bank’s impression of late – is positive for the pound, but concerns about the economic fallout leave a bitter taste. And that could make it harder for sterling to post gains, regardless of whether interest rate expectations continue to rise.
