BoE's Rate Hike Delay Sparks Concerns for Pound

The Bank of England (BoE) has kept interest rates unchanged despite soaring energy prices and inflation expectations, leaving markets to wonder if they will raise rates in the future. The BoE's decision to hold off on a rate hike comes as the Federal Reserve raised US rates for the first time in three years and the Bank of Japan increased its base rate to its highest since 1995.

Despite futures positioning suggesting an 8% chance of a rate hike this Thursday, the BoE's Monetary Policy Committee (MPC) voted 6-3 against raising interest rates. This decision has sparked concerns that the Pound will be negatively affected in the long run, particularly if inflation continues to rise.

One reason for the BoE's hesitation is its reluctance to raise rates unless absolutely necessary. Additionally, Governor Bailey has expressed regret over the bank's response to the Ukraine energy price spike and questioned whether raising interest rates is an effective way to combat supply-side issues.

The market still prices in a near 5% interest rate this time next year, but experts believe this is unlikely due to various factors such as the ongoing war in Iran and potential changes in US policy. As a result, the Pound may suffer significantly if rates do not increase soon.