- Prior 2.25%
- Bank rate vote 9-0* vs 9-0 expected (*Tenreyro voted for 25 bps, Dhingra voted for 50 bps)
- Majority of policymakers judge further increases in bank rate may be required
- But to a lower peak than 5.20% priced into markets
- Outlook for UK economy is "very challenging"
- Financial conditions have tightened materially since August
- Majority of policymakers believe 75 bps rate hike would reduce risk of extended, costly tightening later
- CPI inflation projected to pick up to around 11% in 2022 Q4, lower than was expected in August
- GDP is still expected to be falling at the end of 2023
- There are considerable uncertainties around the outlook
- If the outlook suggests more persistent inflationary pressures, BOE will respond forcefully, as necessary
- Full statement
The forecasts by the BOE are a mixed bag as they lower Q3 growth projections from -0.1% q/q to -0.5% q/q this time around but upped their forecast for 2022 GDP as a whole (+4.25% vs +3.50% previously). The central bank also notes a lower inflation projection but all of that doesn't change the fact that they are viewing a stagflation outlook.
Instead, the focus of markets is on the communique with the bank rate votes showing two policymakers siding with a less aggressive move and the comment that they are viewing a lower peak in the bank rate than currently priced into markets.
That is arguably what set off the drop in cable from 1.1255 to 1.1200 on the initial reaction. But looking at things overall, not much has changed as the BOE is still able to push forward with tighter policy in December and perhaps early next year. The issue here is where the peak might be and I'd still wager that to be somewhere around 4.50% to 4.75%.