Key Takeaways

  •  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. 

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