The Bank of England has two hawkish members who last voted for a rate hike; Saunders and Ramsden. Saunders is now leaning more dovishly as of late. On December 03 Saunders said that decisions in December’s meeting will be dependent on the economic effects of the new Omicron variant. He also said that any rise in the Bank Rate will be limited given that the neutral level of interest rates remain low. Broadbent is a more neutral member but he spoke on December 06 and mentioned uncertainty concerning the BoE decision due to Omicron.

The rise of Omicron and Saunders dovish comments have caused the Sonia futures to price out any chances of a rate hike. The current expectations are that interest rates will remain unchanged next week.

The GBP has found recent sellers since their November 04 meeting where the bank confounded analysts by strongly walking back from hiking rates. Not only did they postpone rising rates, but they also painted a more dovish picture. This has resulted in some of the bullish bets being unwound and the COT report showing a short GBP position.

Labour market

There are a large number of advertised job vacancies which rose to over 1.1 million people in September. The BoE reports that there is a general picture of higher vacancies, recruitment pressures, and higher wages. So, the problem for the UK is that COVID happened around the same time as the Brexit fallout. So, there were meant to be a whole group (around 900,000 according to the Institue for Employment Studies) who could have filled the gap from leaving EU workers out of Britain. So, if those workers can be attracted to work again then the wage pressures should slow. However, if they don’t return to the labour force then the BoE may have to hike rates to contain spiralling wage costs.

The takeaway

If the BoE does hike this will be a surprise and provide an immediate opportunity in selling the EURGBP. The ECB is not expected to raise rates and Christine Lagarde has recently stated that it was unlikely that rates in the eurozone would increase next year.