Pound Living on Borrowed Time as BoE

© Reuters.

By Yasin Ebrahim

– The pound was handed a lifeline recently as the Bank of England unexpectedly hike rates for the first time in three years, but the tailwind will be fleeting as U.K. may impose further restrictions to curb the Omicron spread.

GBP/USD rose 0.7% to 1.3332.

The BoE rate hike has “offered only some time-limited support to the pound, [but] the fast spread of the Omicron variant in the UK may keep some pressure on GBP around Christmas, in particular as the government may opt to impose some new restrictions,” ING said in a recent note.

The UK government is facing calls from to follow other countries in mainland Europe and impose more stringent restrictions to stop the spread of the omicron variant of Covid-19 just as daily cases of Covid-19 passed 100,000 for the first time on Wednesday.  

Though there does appear to be scope for the government to avoid a return to a national lockdown in England should hospital admissions in London remain below 400 per day by the end of this week, according to local media reports.  

Hospital admission reached 301 per day in London, according to latest government data.

Rising political uncertainty, however, may also present a slippery path ahead for the pound as “markets attempt to re-assess both the Brexit policy,” ING said.

Yet, with the pound down about 3% against the dollar since its recent peak, there may be room for a short-term bounce, though the risks still appear “moderately skewed to the downside,” ING added.

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