BOE REVIEW: MPC forced to hike once again but keeps mum on future moves

As expected, the MPC came to market with a 25bps rate hike, taking the Base Rate to 5.25% and disappointing some outside calls for a larger 50bps move. The decision to raise rates was subject to an 8-1 vote with Dhingra the lone dissenter whilst the magnitude of the rate hike was subject to hawkish dissent from Mann and Haskel who backed a 50bps increase. The decision to move on rates was backed by the consensus view that although recent data outturns had been mixed, some key indicators, notably wage growth, had surprised significantly on the upside. In the accompanying statement, the MPC reiterated that "if there were to be evidence of more persistent pressures, then further tightening ... will be required"; it is worth noting that the MPC judges current policy as restrictive. Moving forward, Bailey stated that the MPC needs to make absolutely sure that inflation falls all the way back to 2%. The forecasts embedded in the accompanying MPR saw the 2023 inflation projection held at 5% whilst the two-year forecast was revised higher to 1.5% from 1.0% but ultimately still seen below target and therefore indicative that the MPC judges the current rate path to be tighter than required to return inflation back to mandated levels. From a growth perspective, GDP is seen at 0.5% per annum from 2023-2025. In the follow-up press conference, Bailey cautioned that continued strength in services prices may suggest high inflation will persist, adding that upside surprises on wage inflation suggest that it will take longer for second-round effects to fade. Bailey refused to get drawn into hypothesizing what will happen next for the Bank Rate and stressed the Bank's data dependency, however, he did note that there is more than one path for rates that would deliver inflation back to target.  On the balance sheet, Deputy Governor Ramsden said that the MPC will make a decision on QT in September, however, he personally can see the case for slightly increasing the pace. Overall, the choppy price action in the aftermath of the announcement suggested that there was "something for everyone" in the release, or at least, there is uncertainty over what is to come in the coming months. That said, markets have seen a mild dovish repricing with the terminal now seen at circa 5.7% vs. 5.57% pre-release, likely as a result of the MPC now judging policy to be restrictive. In terms of desk views, ING suggests a "hike in September seems likely, but by November we think the news on services inflation and wage growth should be looking a little better".

03 Aug 2023 - 14:41- EquitiesData- Source: Newsquawk