Share:
  • The BoE today decided to keep the policy rate unchanged at 5.25% with forward guidance remaining broadly unchanged.

  • We think that this marks the peak in the Bank Rate of 5.25%, although wage growth and service inflation remain a joker.

  • We stay negative on GBP and continue to see relative rates as a moderate positive for EUR/GBP from here.

The Bank of England (BoE) decided to keep the the Bank Rate (key policy rate) unchanged at 5.25%. Five members voted for an unchanged decision while four members voted for an increase of 25bp. On gilt stock reduction, the BoE set a target of a reduction of GBP 100bn for the next 12 months (up from 80bn the past 12 months).

The majority of the Monetary Policy Committee (MPC) voted to keep the Bank Rate unchanged, citing the recent downside surprise to august inflation and further signs that the labour market was loosening. The BoE now expects GDP to rise only slightly in 2023 Q3 and underlying growth in the second half of 2023 also likely to be weaker than expected. Likewise, the BoE expects CPI inflation to “fall significantly further” while noting that service inflation is projected to remain elevated in the near-term. The BoE reiterated that “the current monetary policy stance is restrictive" and that “Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with its remit". The BoE retained its forward guidance repeating that “further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures”. While there is potential for a hike further out, only further amplified by the tight vote split, we do not believe that data will prove sufficiently strong for this to be the case. We expect the UK economy to show further signs of weakness, inflation to level off and a peak in private sector wage growth. Likewise, data releases are rather limited before the next meeting on 2 November, where we only get one job market report and inflation data for September.

Rates. Overall, the reaction in rates markets was relatively muted. Initially, rates markets rallied on the decision and statement and sent 2Y Gilt yields lower, but largely retraced the move during the afternoon. Markets are pricing in 10bp for the November meeting and a peak in the Bank Rate of 5.45%.

FX. EUR/GBP initially moved higher but partly retraced the move later on. On balance, we continue to see relative rates as a moderate positive for EUR/GBP, although GBP has been largely decoupled from moves in relative rates the past month. We expect the relative performance of the euro area and UK economy to be a driver, targeting a moderate rise in EUR/GBP to 0.88 the next year.

Our call. We expect the peak in the Bank Rate to have been reached. In order for BoE to opt for a 25bp instead of an unchanged decision at the next meeting we believe that we would have to see data releases, most notably wage growth and core inflation, prove considerably better than what we currently pencil in. Our call is less than current market pricing (20bp until March 2024). We still believe that the first rate cuts will not be delivered before Q2 2024. 

Download The Full Bank of England Review

Share: Feed news

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content


Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended Content

Editors’ Picks

AUD/USD prints slight gains post-FOMC minutes, mixed Aussie PMIs

AUD/USD prints slight gains post-FOMC minutes, mixed Aussie PMIs

The Australian Dollar posted minuscule gains on Wednesday against the US Dollar, after the release of the Federal Reserve’s January meeting minutes emphasized policymakers remain hesitant to begin to ease policy. Therefore, the pair exchanges hands at 0.6550, down by 0.02% as the Asian session begins.

AUD/USD News

EUR/USD drifts into Wednesday's top end after Fed Minutes, markets pivot to PMI wait

EUR/USD drifts into Wednesday's top end after Fed Minutes, markets pivot to PMI wait

EUR/USD drifted into the midrange before a late break into the high side on Wednesday after the US Federal Reserve (Fed) published its latest Minutes which showed policymakers continue to remain focused on downside risks.

EUR/USD News

Gold price hovers around the 50-day SMA as traders eye flash PMIs

Gold price hovers around the 50-day SMA as traders eye flash PMIs

Gold price is virtually unchanged after the US Federal Reserve released January’s meeting minutes, which reassured market participants that the Fed is in no rush to cut rates in the near term.  The XAU/USD trades within the $2020-30 range.

Gold News

Bitcoin price likely to fall but MicroStrategy’s $12 billion market cap makes it a possible S&P 500 candidate

Bitcoin price likely to fall but MicroStrategy’s $12 billion market cap makes it a possible S&P 500 candidate

Bitcoin price consolidation continues to stretch but steadily leans in favor of the downside. This is expected as markets tend to not wait that long. Meanwhile, Michael Saylor’s firm MicroStrategy is making headlines with a possible listing in the S&P 500.

Read more

Nvidia Stock Earnings: NVDA Q4 results trounce consensus

Nvidia Stock Earnings: NVDA Q4 results trounce consensus

Nvidia beat earnings consensus from Wall Street by a large margin on Wednesday, and the stock jumped more than 3% afterhours. Consensus had been $4.64 in adjusted EPS for the quarter ending in December, but Nvidia posted $5.16.

Read more

Majors

Cryptocurrencies

Signatures