United Kingdom: BoE hikes by 50 basis points in December
On 15 December, the Bank of England (BoE) increased the bank rate from 3.00% to 3.50%, marking the ninth successive rate hike.
The Banks decision to tighten its stance was driven by the desire to tame inflation, which is currently in double digits and more than five times the Bank of Englands 2.0% target. The tight labor market and recent acceleration in private-sector pay growth also underpinned the Banks decision.
The Bank reiterated its previous guidance that “further increases in Bank Rate may be required for a sustainable return of inflation to target”. The Consensus is for the Bank Rate to peak at slightly over 4% in mid-2023, with forecasts for the peak level ranging from 3.75% to 4.50%.
Analysts at Goldman Sachs are at the hawkish end of our panel:
“Looking ahead, we continue to expect another 50bp hike in February, followed by 25bp hikes in March and May for a terminal rate of 4.5%.”
INGs James Smith is more dovish:
“For now, our best guess is the Committee implements another 50bp hike in February before calling it a day. The hawks can continue to point to 6% wage growth and the fact that core services inflation is running higher than expected in November. But todays meeting is a further demonstration of the delicate balancing act facing the BoE, between mitigating the risks of a tight jobs market on the one hand against mounting concerns about the housing market and the health of corporate borrowers on the other. We expect Bank Rate to peak at 4% in the new year.”