Traders are betting the next rate hike will be the last as the pound hits a 15-week low against the dollar

The pound hit a 15-week low against the dollar yesterday as traders bet an expected rate hike this week would be the last.

Sterling fell to a low of $1.2366 ahead of a decision by the Bank of England on Thursday, which is widely expected to see interest rates rise to 5.5 percent from 5.25 percent.

The currency could take another hit if the Bank signals at this week’s Monetary Policy Committee (MPC) meeting that the rate hike is over.

“Any indication on Thursday that the UK policy rate would be anything like ‘sufficiently restrictive’ would most likely hit the pound,” ING Bank’s Chris Turner said.

Economists at US investment bank Goldman Sachs said a pause in interest rate hikes as soon as this week could even be a “possibility”.

But on balance they still expect the MPC to go for a new increase, the 15th in a row.

More likely, they suggest, is that the committee will keep rates stable at its next meeting in November.

An end to rate hikes could offer a glimmer of hope for borrowers hit by a series of rate hikes since December 2021, as the MPC fought to curb inflation, which peaked at 11.1 percent last fall.

Higher interest rates already mean millions of homeowners face sharp increases in monthly repayments, and business surveys suggest this could push Britain towards a recession.

Inflation remains well above the Bank’s target of 2 percent at 6.8 percent and tomorrow’s figures are expected to show it rose back above 7 percent in August due to rising fuel prices.

Meanwhile, wages are still rising at a record pace – another potential driver of inflation.

But Bank of England Governor Andrew Bailey believes rates are still heading for a “pretty clear” decline by the end of the year, declaring earlier this month that rates were nearing the “top of the cycle.”

And other data, such as shrinking GDP and rising unemployment, suggest the economy is cooling.

Yesterday, the financial markets had priced in a more than 80 percent chance that interest rates would rise again this week.

But the chances of another surge in November are estimated at only about 30 percent.

Goldman’s experts said the Bank will likely need clearer signals that this is the case before halting rate hikes.

“Looking ahead to the November meeting, we see a greater likelihood that the successive wage and price pressures have cooled sufficiently for the MPC to be put on hold,” they said in a note to clients.

Economists at Citi, another US investment bank, also think this week’s expected rate hike will be the last.

But signs of a split among the nine-member MPC are already beginning to appear.

Catherine Mann, the most hawkish member, warned last week that pausing rate hikes risked entrenching high inflation in the economy. She said she would rather “err on the side of tightening too severely.”

This week’s interest rate decision comes a day after the Bank’s counterparts at the US Federal Reserve announced their next move, with markets expecting a pause.