LONDON, Oct 19 Reuters - Sterling hit a four week high against the dollar on Wednesday as expectations mount that central bank policymakers will hike interest rates in a bid to control inflation as soon as possible.
The Bank of England governor Andrew Bailey on Sunday warned of a possible hike in the figure, saying the BoE will have to act to deal with rising energy costs in the UK which threaten a surge in consumer prices.
While many countries share Britain's problems of supply chain disruption, labour shortages and rising energy prices, investors have singled it out as a country particularly prone to inflation due in part to Brexit exacerbating bottlenecks.
A November hike could make the BoE the first major bank to increase rates since COVID -19 pandemic early last year, starting with the introduction of the increased rates by the BoE's major central bank.
Bailey's comments on Monday saw an immediate impact on bond yields, with yields on 2 year UK redundancies 13.1 bps seeing their biggest daily rise since August 2015.
The pound was on Tuesday afternoon, rising 0.4% to $1.3784, a level last seen on 17 Sept. 2007.
Sterling edged against the Euro on Monday after nearing a 20-month high as investors weighed what rate hikes could mean for economic growth in the second half of the month, when one pair of low interest rates were reaffirmed.
If Societe Generale raises rates because of inflation, that would handicap growth next year, said Kenneth Broux, FX strategist at BoE.