The pound is entering the global financial scene once again, showing the difficulty of breaking through the next barrier in the GBP/USD pair. Passions are also heating up around a potential interest rate hike by the Bank of England, which is expected in December.
Analysts say that the current UK macro statistics are in favor of raising rates. According to Markit reports, the PMI index, which is responsible for the growth of production in industry and the service sector, was on top this month. By the end of this month, the British economy is maintaining high growth rates, and this gives the go signal to increase rates. A number of enterprises in the United Kingdom reported a rapid increase in new orders, which has not been recorded since June 2021. However, there is one problem. It turned out to be a record increase in production costs. Experts believe that the aggregate macroeconomic data sets the stage for a December rate hike by the Bank of England.
According to IHS Markit estimates, the UK manufacturing activity index was 57.7 points in November. This is slightly lower than the October figure of 57.8 points, but much higher than the key level of 50 points, demonstrating steady economic growth. According to experts, the long-awaited acceleration of the country's GDP growth in the fourth quarter of 2021 is likely after slowing to 1.3% in the third quarter. This is facilitated by the acceleration of the economic growth of new enterprises. According to preliminary calculations, production growth in the UK will continue in the near future. A steady rise in the service sector added optimism. At the same time, experts are afraid of the economic distortion caused by the dominance of this sphere.
According to Markit, the steady growth of the UK services sector contrasts sharply with the modest results in the manufacturing sector. The shortage of supplies and problems with logistics worsened the situation. This creates a threat of price pressure and increased production costs for most enterprises. According to analysts, the record growth in the costs of British companies increases concerns about a new round of inflation. Economists are concerned that current inflation may exceed 5%. It can be recalled that it reached an impressive 4.2% in October of this year, leaving far behind the target level of 2%.
Unemployment goes hand in hand with inflation, so the level of employment of the population is very important to experts. In November, this indicator showed steady growth, continuing the trend of the last nine months. According to the PMI, the increase in the number of jobs remains stable both in manufacturing and in the UK services sector.
The current situation keeps the British currency in suspense. A small economic imbalance is holding back the growth of the pound, which is striving for another high – the level of 1.3400. However, despite the positive data on the labor market and the relatively stable state of the economy, it is difficult for the British currency to overcome this bar. On Wednesday morning, the GBP/USD pair was moving around the level of 1.3385, making steps towards further growth.
According to analysts, it is difficult for the GBP/USD pair to develop an upward movement, despite the moderate correction of the US dollar across the entire spectrum of the market. The current situation is unfavorable for the "bulls" in the pound since the market is dominated by a "bearish" mood. If the bulls consolidate near the level of 1.3400 (the Fibo level of 23.6% correction), then the resistance zone of 1.3440 (the Fibo level of 38.2% correction) will be in the center of attention. If it is impossible to recover above the level of 1.3400, the bears may start selling the pound. The "bearish" scenario is possible to be canceled in the event of a breakdown of the mirror level of 1.3404, which will open the way to new peaks – 1.3445 and 1.3490.
Next month, the key issue for the pound will be a rate hike by the Bank of England. This decision is supported by an increase in the number of jobs. However, the low growth of production in the country is a "stop-tap" for the monetary authorities. Against this background, the probability of an interest rate increase at the December meeting of the regulator remains questionable.
Earlier, Jonathan Haskell, a Bank of England representative, said there was a high probability of a rate hike next month. According to him, this decision is a symbol of economic recovery. He said that if monetary policy turns out to be too accommodative, the British economy will face the secondary impact of inflation. Experts assessed the politician's comments as "dovish". J. Haskel argues that the main condition for raising the rate is clear signs of economic growth, not just the recovery of the labor market. Summing up what has been said, analysts conclude that if all conditions are met, a rate hike in December is possible.
