In the wake of the Bank of England's latest monetary policy decision, MUFG has shared its analysis, suggesting that while the pace of tightening has been slowed, another rate hike may still be on the horizon.
Key Points:
Reduced Tightening Pace: The BoE opted for a smaller increment of 25bps in its latest rate adjustment, indicating a deceleration in its tightening strategy.
Strong Majority for 25bps Hike: The decision to go for a 25bps increase was backed by a robust majority. This stance indicates that the bar has been set high for any future larger hikes of 50bps.
Door Still Open: The BoE hasn’t entirely shut the door on further hikes. They've signaled that if there's more evidence pointing towards sustained inflation risks, additional rate hikes might be in the offing.
MUFG’s Forecast: MUFG anticipates one last rate hike in September, based on the current trajectory and statements from the BoE.
Immediate GBP Reaction: The decision for a smaller rate increase led to a sell-off in GBP. However, the BoE's relatively hawkish tone, coupled with prior dovish market repricing, helped cushion the currency's fall.
Summary:
MUFG has weighed in on the BoE's recent monetary policy adjustment, interpreting the 25bps rate hike as a slowdown in the tightening trajectory. Despite this measured move, the bank foresees one final rate increase in September. While the immediate aftermath saw a dip in the GBP's value, several factors have worked in tandem to temper its descent. Investors and traders will be closely monitoring any cues from the BoE in the lead-up to their next meeting.
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