The Bank of England is facing mounting challenges after a recent rate increase. Market predictions indicate that interest rates could reach over 6% early next year, with a higher probability of an additional 0.50% hike at the August meeting.

The housing market is displaying increasing signs of strain, as high interest rates and the rising cost of living dampen demand. This situation has significant implications for the broader UK economy, which is particularly sensitive to interest rate changes.

The Bank must strike a delicate balance by raising interest rates sufficiently to control inflation without jeopardizing the long-term economic prospects.

During the Sintra forum, global central bank leaders have consistently reiterated a hawkish stance on monetary policy. Inflation and tight labor markets remain key concerns.

The US central bank governor, Powell, has indicated the possibility of two more rate hikes, dependent on data, with another increase highly likely next month, following a pause this month.

The European Central Bank also continues to signal that two additional rate hikes may be necessary, as the focus remains on the inflation outlook.

Despite the expectation of higher interest rates, the pound sterling has weakened over the past week. The market is more concerned about deteriorating growth prospects. GBP/USD remains volatile within the range of 1.2500 – 1.3000, while the key levels to watch for GBP/EUR are 1.1500 – 1.1750.