BOE - Bank of England

BOE - Bank of England


04-NOV-2022


BOE REVIEW: In-fitting with the majority of expectations and market pricing, the BoE hiked the Bank Rate by 75bps, though its decision was subject to dovish dissent from Swati Dhingra (called for a 50bps rate hike) and Silvana Tenreyro (called for a 25bps rate rise), with both policymakers alluding to headwinds facing the domestic economy, as well as policy transmission lags. As such, and as the BoE explicitly pushed back on peak market pricing (again), an immediate dovish reaction was seen. Interestingly, the line that "...further increases in Bank Rate might be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets." was the judgment of a "majority" of the MPC - though, it is unclear whether the other members took issue with the further hikes or the pushback on peak market pricing. For the majority of the MPC, the justification for a 75bps move was to reduce the risks of more extended and costly tightening later. Alongside this, fresh forecasts were released, which gave a particularly grim outlook for the economy; the MPC sees Q/Q GDP coming in at -0.5% in Q3 2022 vs -0.1% expected in September. The inflation forecast now shows a peak around 11% in Q4, which is marginally hotter than the prior meeting's projection of "just under" that figure - note, the forecasts account for the 17th October statement from Chancellor Hunt in relation to the Energy Price Guarantee, which the BoE assumes will feature some fiscal support after the initial six-month period. Reminder, the full Autumn Statement will be released on November 17th. Overall, the meeting was in-line with market expectations on the magnitude of tightening, although the BoE has gone to great lengths to pushback on peak market pricing while retaining the optionality to "respond forcefully" if necessary. For December, pricing continues to imply a 50bps increase; though, it remains to be seen if more members will join the dovish chorus of Dhingra, Tenreyro and some global peers in applying a greater weighting to growth and policy transmission.