GBP/USD[1], BoE Price Analysis & News
- BoE Expected to Raise Bank Rate to 0.5% With a 9:0 Vote Split
- Focus is on QT Talk and View on Aggressive Tightening Path
SUMMARY: The Bank of England is expected to deliver a 25bps hike at its upcoming meeting with a 9-0 vote split. A reminder that last month, Tenreyro had been the sole dissenter, voting to keep the Bank rate unchanged given the uncertainties surrounding the Omicron variant. This will mark the first back to back hike since 2004, however, with money markets fully priced in for a 25bps hike, the focus for traders will not necessarily be on what they do, but what they say.
With the Bank rate set to hit 0.50%, the BoE will have some optionality going forward. As outlined in August 2021, the Bank will be able to cease the reinvestment of maturing gilts and thus reduce the stock of purchased assets. Therefore, we can expect the BoE to confirm that it will embark on quantitative tightening, particularly with Governor Bailey recently stating that such action will likely have a minimal impact. Of note, there is roughly £28bln worth of gilts maturing in March.
DATA: Inflation has continued to edge higher, the latest reading printing at 5.4% Y/Y (vs Exp. 5.2%) and moving closer to the MPC’s peak forecast of 6% by April. In turn, staff projections will likely show an upgrade. Meanwhile, the labour market remains robust, with the unemployment rate falling to a fresh cycle low of 4.1%, although, the wages component pulled back a touch, slightly alleviating concerns of a wage-price spiral. On the whole, the recent string of economic data further emphasises the need for the central bank to hike.
RATE OUTLOOK: As with the majority of G10 central
