Ben Laidler, Global Markets STrategist at eToro said: "Bank of England (BoE) governor Bailey's speech at the IMF meetings this week boosted the likelihood of a further UK interest rate hike and underlined how even isolated bank failures drive contagion into the economy.
Recent bank failures were seen as isolated and would not divert the BoE from continuing to tighten monetary policy. It had the tools to successfully compartmentalise between financial conditions and fight what is the highest inflation of any major world economy. This makes a 12th rate hike at its May 11th meeting more likely. This hawkish view has helped make the Sterling the best-performing major currency versus the US dollar this year.
"There are financial system issues that need to be looked at, from the need for more bank liquidity to the room for higher bank deposit guarantee levels. These guarantees are less than half the $250,000 level in the US, at £85,000 in the UK and €100,000 in Europe. This inevitable regulatory tightening will do more of the BoE’s work in cooling the economy and lowering inflation, by increasing costs for banks and leading them to cut their lending to companies and consumers.
Ben Laidler, eToro’s Global Market Strategist
