The Bank of England hike interest rates with a hawkish tilt

London (Feb 3) The Bank of England (BoE) raised interest rates as expected by 25bps to 0.50%. The vote was unanimous at 9-0.

Traders have brought forward the estimate to 1% by May 2022

There were three members that wanted rates to move to 0.75%. So there seems to be a slightly more hawkish tilt than some analysts were expecting.  Ramsden, Saunders, Haskel, and Mann were the dissenters. 

Key comments from the statement

At its meeting ending on 2 February 2022, the MPC voted by a majority of 5–4 to increase Bank Rate by 0.25 percentage points, to 0.5%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 0.75%

Twelve‑month CPI inflation rose from 5.1% in November to 5.4% in December, almost 1 percentage point higher than expected at the time of the November Report. Inflation is expected to increase further in the coming months, to close to 6% in February and March, before peaking at around 7¼% in April. This projected peak is around 2 percentage points higher than expected in the November Report.

Bank Of England Raises Bank Rate By 25Bps To 0.50% From 0.25% - Voted 5-4 To Raise Bank Rate

Prior to the event  money markets were pricing in 5 hikes from the BoE in 2022
At 0.5% the BoE can opt to end reinvestment of maturing assets (Reminder, there is £28bln worth of gilt maturities in March).

Nomura said “We expect the BoE to continue hiking with a 25bp move. Looking beyond the February decision, we continue to think that the Bank will raise rates throughout this year. We take this opportunity to adjust our BoE view to a 25bp hike every quarter, taking rates to 1.25% by year-end. Two further hikes in H1 2023 would leave rates at a terminal point of 1.75% by the middle of next year.”

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