BOE raises bank rate by 25 bps to 5.25%, as expected

  • Prior 5.00%
  • Bank rate vote 8-1 vs 7-2 expected (Dhingra dissented, Haskel and Mann voted for 50 bps)
  • Current monetary policy stance is restrictive
  • Labour market remains tight but there are some indications that it is loosening
  • CPI inflation remains well above the 2% target
  • It is expected to fall significantly further, to around 5% by the end of the year
  • Risks around the modal inflation forecast are skewed to the upside, albeit by less than in May
  • Some key indicators, notably wage growth, suggest that some of the risks from more persistent inflationary pressures may have begun to crystallise
  • If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required
  • Full statement

The first thing to note right off the bat is that the BOE has now acknowledged that monetary policy is now ‘restrictive’. In lieu of that, they have made a subtle change to their forward guidance from before. In June, they said that:

“The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.”

Today, they are saying that:

“The MPC will ensure that Bank Rate is sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit.”

However, they are not straying away from the notion that more rate hikes may be required and they are continuing to keep rather data dependent on that. The bank rate votes split is also seemingly more hawkish with Haskel and Mann advocating for a 50 bps move today.

The pound is falling lower though as traders are adjusting to the decision in itself. There was roughly 32% odds of a 50 bps move priced in for today and so naturally, we are seeing a bit of a fallout there as price falls to 1.2630 now after the initial whipsaw.

This article was written by Justin Low at Source