The Bank of England hiked rates by 75bps as expected (7 voted for 75bps, 1 voted for 50bps, and 1 voted for 25bps) after CPI soared to a 40-year high in September.
This is the biggest BoE rate-hike in three decades (eighth hike in a row and the biggest since 1992), but we note that the Monetary Policy Committee (MPC) pushed back aggressively against the hawkish market expectations ahead.
…the peak in rates will be “lower than priced into financial markets”
The BOE is expressly dovish in trying to guide market expectations on interest rates lower:
“The majority of the Committee judges that, should the economy evolve broadly in line with the latest Monetary Policy Report projections, further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets.”
Valentin Marinov, head of G10 currency research at Credit Agricole:
The BOE is “sending a clear signal that the Bank Rate path expected by the markets ahead of the policy meeting is too high. The outcome contrasts sharply with the hawkish message from Fed Chain Powell yesterday and could trigger further drop of the GBP-USD rate spread, adding to the headwinds for GBP/USD.”
BoE commented on recent market volatility:
There have been large moves in UK asset prices since the August Report. These partly reflect global developments, although UK-specific factors have played a very significant role during this period.
The MPC expects more economic pain ahead…and implies the UK is already in recession, and that GDP will fall for eight straight quarters until mid-2024.
The Tribulation is commencing..
Please repent, carry your cross daily and accept the free gift of Jesus Christ’s Death on the Cross for payment for your sins.
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