Bank of England’s Last Hike?
Bank of England’s Last Hike?
Heading into the meeting the Bank of England was expected to hike interest rates by 50bps to 4%. The Bank hiked with a 7-2 vote split. Two voters, Tenreyro and Dhingra, voted for no rate hikes like they did last time and wanted rates to stay at 3.50%. Interestingly, Catherine Mann, was not a hawkish dissenter this time and was happy to join the other MPC members for a 50bps hike. So, the vote split this time showed a more dovish shift compared to December’s decision.
Is this the last hike?
It could be. Bank of England’s Governor Bailey said that it is too soon to say this is the last rate hike from the Bank of England. However, policymakers did abandon the word ‘forcefully’ from its guidance and opted to say that, ‘if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required’.
Wages and services
The main focus for the BoE continues to be on how wage growth is doing and how the service sector is being impacted by those rising wages. Although inflation for goods has been coming down there is still inflationary pressure in the service sector and the BoE wants to be able to address that as needed. In other words, another rate hike/hikes could need to come if services inflation rises sharply.
The next decision
For now, the Bank of England will hope that it has won the inflation battle. Headline inflation still sits over 10%. So, yes, inflation has been falling, but it is still 5 times over the Bank of England’s 2% target for the headline.
The core inflation reading has remained sticky. December’s reading was at 6.3% which is close to the record high of 6.5% in 2022. You could argue that the Bank of England may be too premature to win the battle over inflation as the readings are still elevated with only minor evidence of a pullback in the core reading.
The GBP reaction
The GBP sold off post the event on the more dovish hopes of the end to UK interest rate hikes. However, this decision could actually end up being GBP-supportive medium term as lower interest rates should make for more positive business conditions within the wider economy. Major support level on 1.1900 marked on the GBPUSD chart below.
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