BoE: We therefore call for another 50 bps increase in November – Rabobank
|The Bank of England announced on Thursday a 50 bps rate hike. Five members of the Monetary Policy Committee voted for that decision, three members wanted at 75 bps hike and one member a 25 hike. According to analysts at Rabobank, the slip decision reflects a very uncertain economic outlook. They point out that strong fiscal easing opens the door to a 75 bps increase in November, especially if the market believes the government borrows too much. But they consider the uncertain growth and inflation outlook continues to favor a more gradual rather than a frontloaded approach.
Key Quotes:
“The Monetary Policy Committee voted to raise the benchmark rate to 2.25% from 1.75%. There was a 3-5-1 split, reflecting uncertainty even as the eventual vote was in line with consensus and our own expectation of a 50 bps hike. Market participants were positioned for a 75 bps increase going into this meeting, following similar recent increases on the part of the Federal Reserve and the European Central Bank. The minutes were, however, seen as fairly hawkish, prompting another leg higher in yields.”
“We stick to our rationale that the change in the expected inflation profile – certainly significantly lower energy-driven inflation in the short-term; probably more persistent demand-driven inflation in the medium-term – should keep the Bank of England on a more gradual but also a more sustained path of rate increases. We therefore call for another 50 bps increase in November.”
“The Bank of England can, however, only maintain such a relatively gradual pace of interest rate increases (vis-à-vis other central banks!) if Truss and her team are able to reassure markets that she has a plan on how she will eventually provide balance in public spending. Today’s price action, with large spikes in gilt yields, shows that just the promise of more growth is certainly not enough.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.