By Yasin Ebrahim

Investing.com – 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.

The increase was 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.

There are calls for the UK to follow the lead of other European countries and place more restrictions in order to prevent the spread of Covid-19 omicron. This comes as Covid-19 daily cases have surpassed 100,000 on Wednesday.  

According to reports in local media, there may be some room for the government to prevent a return of a lockdown in England if London hospital admissions are below 400 per night by week end.  

According to the latest data from government, hospital admissions reached 301 in London each day.

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.