BoE hikes by 50 basis points in February
On 2 February, the Bank of England (BoE) increased the bank rate from 3.50% to 4.00%, marking the tenth consecutive rate hike. The outcome of the meeting was already priced by markets. While seven out of nine members of the Monetary Policy Committee (MPC) favored hiking, two voted to keep the rate unchanged at 3.50%.
The main driver of the decision was the desire to tame inflation, which has recently been higher than the Bank of England expected and is far above the BoE’s 2.0% target. The tight labor market and stronger-than-expected private-sector wage pressures further underpinned the hike.
In its communiqué, the MPC stated that further monetary tightening would be required if there was evidence of more persistent inflationary pressures. The Bank’s tone grew more dovish, with no repeat of the prior meeting’s pledge to act “forcefully” to tame inflation. Most of our panelists still expect 25–50 basis points of further hikes at upcoming meetings in order to see off inflation, although some see no more tightening.
Analysts at the EIU are at the dovish end of our panel:
“The BoE has left the door open for one further rate increase, but our revised baseline forecast is that this is unlikely and the policy rate is likely to have peaked. With commodity prices easing, we are likely to revise down our full-year average inflation forecast for 2023.”
Analysts at Goldman Sachs are more hawkish:
“We maintain our view that very high wage growth and strong underlying domestic inflationary pressures will convince the MPC to opt for a 25bp hike in March. But given today’s communication and signs of labor market rebalancing, we no longer expect the BoE to hike in May, and revise down our peak rate forecast to 4.25.”
The next meeting is scheduled for 23 March.
United Kingdom 10-Year Gilt Yield (%, eop) Data
|10-Year Gilt Yield (%, eop)||1.19||1.27||0.82||0.20||0.97|