The Bank of England on Thursday raised interest rates by 25 bps to 1.0%. Six of the bank's nine rate-setters supported the 25 bps hike, though three wanted a larger 50 bps move. The rate hike was in line with expectations, but the vote split was more hawkish than expected, with a Reuters poll showing that eight had been expected to support a 25 bps hike and one support no hike. 

The BoE said that most of its Monetary Policy Committee (MPC) members think that "some degree of further tightening in monetary policy may still be appropriate in the coming months". However, two of its MPC members thought that this rate guidance was inappropriate given risks to growth. 

According to the BoE's new Monetary Policy Report (MPR), inflation is seen peaking at an average of slightly above 10% in Q4 2022, an upwards revision from the March forecast for inflation to peak at around 8.0%. 

Additional Takeaways:

BoE staff will work on an active bond sale strategy and will report back to the MPC by the August meeting, with the MPC to then decide on whether to start sales at a subsequent meeting. 

GDP growth to slow sharply over the next year and a half, due to a sharp rise in global energy and tradable goods prices.

BoE forecasts point to a sharp contraction of almost 1% QoQ in Q4 2022 after energy prices rise again, followed by a small fall in GDP for 2023 and unemployment rising to 5.5% over the next 3 years. 

The BoE estimates GDP growth to be +0.9% QoQ in Q1 2022, a little higher than the March estimate of +0.75% QoQ, and sees around zero growth in Q2 2022 due to extra the public holiday and reduced Covid testing. 

The BoE forecast shows inflation in three years' time at 1.30%, lower than the February forecast of 1.60%, based on market interest rates. 

The BoE said UK inflation is likely to peak later, and fall back later, than in other countries due to the UK's energy price cap. 

Market rates imply more BoE tightening than back in February, showing the bank rate at 1.9% in Q4 2022, 2.6% in Q4 2023, 2.2% in Q4 2024, versus 1.2% in Q4 2022, 1.4% in Q4 2023, 1.3% in Q4 2024 back in February. 

The BoE forecast shows inflation in one year's time at 6.65%, higher than February's forecast of 5.21%, based on market interest rates and the modal forecast. 

The BoE forecast shows inflation in two years' time at 2.14%, similar to February's forecast of 2.15%, based on market interest rates. 

The BoE estimates real post-tax household disposable income falling -1.75% YoY in 2022, larger than the decline forecast in February of -1.25%, before then rising +1% in 2023 +2.5% in 2024. The 2022 decline will be the biggest annual drop since 2011. 

The BoE estimates wage growth will be +5.75% YoY in Q4 2022, above February's estimate of +3.75%, +4.75% in Q4 2023 and +2.75% in Q4 2024.

The BoE estimates GDP will grow +3.75% in 2022, in line with their February estimate, before declining 0.25% in 2023 and then rising 0.25% again in 2024.

The BoE estimates the unemployment rate will be 3.5% in Q4 2022, below the February forecast of 4.1%, before rising back to 4.25% in Q4 2023 and then to 5.0% in q4 2024. 

Market Reaction

GBP initially saw a kneejerk move higher, probably as a result of the hawkish vote split with three MPC members wanting a 50 bps hike, with GBP/USD momentarily surpassing 1.2575. The pair has since reversed sharply lower and is now trading in the 1.2450s, down about 1.3% on the day. 

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. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content

Recommended content

Editors’ Picks

EUR/USD clings to modest gains above 1.0550 ahead of US data

EUR/USD clings to modest gains above 1.0550 ahead of US data

EUR/USD managed to regain its traction and turned positive on the day above 1.0550. The data from the Eurozone showed that Sentix Investor Confidence improved to -21 in December from -30.9 in November. Investors await ISM Services PMI data from the US.


GBP/USD stays below 1.2300 as US Dollar holds steady

GBP/USD stays below 1.2300 as US Dollar holds steady

GBP/USD has lost its bullish momentum and gone into a consolidation phase at around 1.2300. Ahead of the ISM Services PMI data from the US, the cautious market mood helps the US Dollar limit its losses and doesn't allow the pair to turn north.


Gold loses traction, trades below $1,800

Gold loses traction, trades below $1,800

Gold price has reversed its direction and declined below $1,800 after having touched a fresh multi-month high of $1,810 during the Asian trading hours. The 10-year US T-bond yield clings to modest gains above 3.5% ahead of US data, weighing on XAU/USD.

Gold News

Ethereum price pops as this week could be the most profitable one of the year

Ethereum price pops as this week could be the most profitable one of the year

Ethereum (ETH) is booking over 1% of gains this morning, which as such is not that uncommon. What is rather important is that Ethereum price is moving away from the bottom of 2022.

Read more

TSLA sinks after automaker cuts Shanghai production

TSLA sinks after automaker cuts Shanghai production

Tesla (TSLA) stock gave up 4.7% in Monday's premarket after Bloomberg reported that its Shanghai factory would trim record production by 20% due to sluggish Chinese demand.

Read more