The Bank of England voted 7-2 to hike Bank Rate by 25bps to 4.5%. This was expected by the market given recent growth and inflation developments.

The Bank’s policy guidance stresses the data dependency of the next policy move, with underlying inflation data particularly important.

 We continue to think UK rates have now peaked. However, should core inflation fall less quickly than expected at least one more rate hike is possible.

The Bank’s growth forecasts were significantly upgraded, and it no longer sees the economy in a recession this year. 

Our forecasts are more pessimistic, with the lagged effects of monetary tightening by the BoE along with spillovers from a US recession causing recession-like conditions in the UK. 

 As such, we still see a significant rate-cutting cycle starting later this year that takes Bank Rate well below current market pricing.