Following this week's jobs market data, the Bank of England is anticipated to adopt a more aggressive approach in raising interest rates. It is now projected that the peak rate will surpass 5.50% by early next year, which could have significant implications for the housing market and the broader economy.
Having been the first major central bank to initiate rate hikes, the Bank of England appears poised to be the last to conclude this cycle, with a 0.25% increase expected this week. The market's attention leading up to the meeting will primarily focus on the forthcoming inflation report scheduled for Wednesday.
The recent data revealed a stronger-than-expected growth in wages, amounting to 7.2%, while the unemployment rate declined to 3.8%. These developments have further fueled underlying inflationary pressures.
Despite higher interest rates and the escalating cost of living, the economy demonstrated resilience by rebounding to a modest 0.2% growth in April, following a decline in March.
Meanwhile, the US central bank maintained its current policy stance this month, with market forecasters assigning a 70% likelihood of an additional rate hike in July.
The European Central Bank increased its key rates by 0.25%, and Governor Lagarde stated that another hike is highly probable next month, as inflation remains the primary focus.
In terms of exchange rates, interest rate differentials continue to be crucial, influenced by inflation and job market data. The British pound remains in high demand due to the expectation of higher interest rates, resulting in year-to-date highs for GBP/USD at 1.2800 and GBP/EUR hovering around 1.1700.
