Bank of England says inflation in Britain is'very worrying'

LONDON, Oct 11 Reuters: Sterling rose against both the euro and the dollar after the Bank of England said inflation levels in Britain were concerning and urged British citizens to prepare themselves for earlier interest rate hikes in interviews published over the weekend.

Bank of England policymaker Michael Saunders said households must brace for a significant earlier interest rate rises. He added investors were right to bet on higher borrowing costs with consumer price inflation rising over 4%, the Telegraph newspaper said on Saturday.

The bank's governor, Andrew Bailey, said in an interview to The Yorkshire PostYorkshire Post newspaper that inflation exceeding the BoE's target of 2.0% was very worrying and had to be managed to prevent it from becoming permanently embedded.

Interest rate futures traded on the CME showed November contracts pricing a 20% probability of a rate increase next month compared to 12% last week, while December futures were priced in a 45% probability of a rate increase by then.

Over the weekend, Sterling traders have spent the morning pricing in the commentary from BoE officials, said Simon Harvey, senior FX market analyst of Monex Europe.

We see the pound s gains from here as limited due to concerns over the underlying level of economic activity. Sterling rose against the dollar to $1.3635 at 0823 GMT, after briefly reaching a two week high. Versus the euro, it rose 0.2% to 84.79 pence, not far from a two-month high touched in earlier morning trading.

The 2 year gilt yield touched 0.603% shortly after the market opened, his highest since January 2020, up 7 basis points on the day.