Home Forex BOE hikes policy rate by 50 bps to 4% as expected

BOE hikes policy rate by 50 bps to 4% as expected

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Following its February policy meeting, the Bank of England (BoE) announced that it raised the policy rate by 50 basis points (bps) to 4% as expected. Two policymakers, Tenreyro and Dhingra, vote to keep the policy rate on hold at 3.5%.

Follow our live coverage of the BoE policy announcements and the market reaction.

Market reaction

With the initial market reaction, GBP/USD edged higher and was last seen posting small daily losses at 1.2374.

Key takeaways from policy statement via Reuters

“If there were to be evidence of more persistent pressures, then further tightening of monetary policy would be required.”

“Past increases in bank rate expected to have increasing impact on economy in coming quarters.”

“BOE sees recession with just under 1% peak-to trough fall in GDP over 5 quarters vs November forecast of around 3% fall over 8 quarters.”

“MPCc continues to judge inflation risks are skewed significantly to the upside.”

“Inflation to fall to 3.92% by Q4 2023 (November forecast: 5.2%), based on market interest rates and modal forecast.”

“Tight labour market and higher-than-expected domestic price and wage pressures point to more persistent inflation.”

“BOE forecast shows inflation in one year’s time at 3.01% (Nov forecast: 5.2%), based on market interest rates and modal forecast.”

“BOE forecast shows inflation in two years’ time at 0.95% (Nov forecast: 1.43%), based on market interest rates.”

“BOE forecast shows inflation in three years’ time at 0.37% (Nov forecast: 0.02%), based on market interest rates.”

“Market rates imply less BOE tightening than Nov, show bank rate at 4.4% in Q4 2023, 3.7% in Q4 2024, 3.4% in Q4 2025 (Nov: 5.2% in Q4 2023, 4.7% in Q4 2024, 4.4% in Q4 2025).”

“BOE estimates GDP growth of +0.1% QQ for Q4 2022 (Dec forecast: -0.1% QQ), sees -0.1% QQ in Q1 2023.”

“BOE estimates no return of GDP to pre-covid peak before 2026 at earliest, based on market rates (Nov: after 2025).”

“BOE estimates GDP in 2023 -0.5% (Nov forecast: -1.5%), 2024 -0.25% (Nov: -1%), 2025 +0.25% (Nov: +0.5%), based on market rates.”

“BOE estimates unemployment rate in Q4 2023 4.3% (Nov: 4.9%); Q4 2024 4.8% (Nov: 5.9%); Q4 2025 5.3% (Nov: 6.4%).”

“BOE estimates real post-tax household income in 2023 -0.5% (Nov: -1.5%), 2024 +1.5% (Nov: +0.75%), 2025 +0.75% (Nov: +1%).”

“BOE estimates wage growth +4% YY in Q4 2023 (Nov: +4.25%), Q4 2024 +2.25% (Nov: +2.75%); Q4 2025 1.5% (Nov: 2%).”

“Covid, Brexit, labour supply and high energy prices have lowered UK potential supply growth for 2024 and 2025.”

“BOE sees short-term speed limit for economy of 0.7% in 2024 and 2025 vs 1.7% supply growth for 2010-2019.”

“UK goods trade with EU weaker than implied by official data since 2021.”

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