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More and more politicians have expressed their belief that UK inflation is slowing significantly this year. However, one of the Bank of England's committee members, Catherine L. Mann, said the recent introduction of a price ceiling could trigger inflation in other sectors by boosting consumer spending.
"By limiting energy prices, we have mechanically lowered the rate of inflation, which is irrelevant to future monetary policy decisions," Mann said during a panel discussion at the American Economic Association's annual conference. "Restricting energy prices is forcing a shift in spending to the rest of the consumer basket, thus causing potentially higher inflation," she added. Mann also spoke about global climate change, arguing that regulatory policies aimed at reducing emissions could change the economic environment over the coming decades.
The Bank of England raised interest rates nine times since December 2021 in order to suppress inflation as quickly as possible. Although the bank now expects inflation to fall sharply this year, policymakers are divided on how long interest rates will rise further. Mann voted for a 75 basis point rate hike in December, while the rest of the group opted for a half-point increase. Two other officials opted to leave it at that.
At the moment, investors are certain of another rate hike in February this year, but whether it will be by half a point or by a quarter is a big question. Minutes from the last meeting showed that most policymakers consider the labor market to be rather tight and inflationary pressures on domestic prices and wages remain stable. This would well justify further monetary policy tightening.
As far as the technical picture of GBP/USD is concerned, Friday's record rise of over 200 pips was quite impressive. Buyers need to break above 1.2160 to maintain their advantage, adn the breakdown of this range will strengthen the hope for further recovery towards 1.2220. After that, it will be possible to see a rise to 1.2260. But if pressure returns after the bears take control of 1.2100, the pair will rush down to 1.2040 and 1.1980.
In EUR/USD, a break above 1.0700 will spur a rise to 1.0730 and 1.0770, while a dip below 1.0650 will increase the pressure on the pair and push it to 1.0610 and 1.0570.
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