- 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.