The meeting was split showing the problem the BoE has as the GBP sinks.
The BoE hiked by 25 bps as expected, but Haskell, Mann, & Saunders voted for a 50 bps hike. Why?With inflation sitting at a 30-year high of 7%, today’s dovish hike from the Bank of England (BoE) is a sign that policymakers are now entering increasingly choppy waters when it comes to controlling the inflation narrative. Generally speaking, the BoE does not want to see inflation entering strongly into wages. Once it does, the issue becomes systemic and generates a force of its own, which becomes exceedingly difficult to control.
However, higher rates will inevitably place pressures on growth, as well as increasing cost burdens on U.K. households – the latter being an issue that many consumers are already having to grapple with. Given that energy prices are continuing to rise against a backdrop of continued geopolitical unrest, this fourth consecutive rate increase from the BoE presents the unique difficulties at hand for the Monetary Policy Committee.
The MPC recognised this and the medium term growth outlook has been revised down LOWER. This is what the market is focusing on. 2023 growth was revised down (and negative) from 1.25% and is now -0.25% . The BoE see GDP growth slowing sharply due to the global energy prices rises and tradable goods prices.
In summary the meeting is a ‘stagflationary’ acknowledgement. Lower growth, with inflation now expected to peak at a whopping 10% this year!
This means the BoE may now need to pause the hiking cycle around the summer and potential cut rates in 2023. This is a negative for the GBP
