The Bank of England held its meeting today. This was an interesting one, after the surprise rate hike in the last meeting, from 0.10% to 0.25%. Expectations for today were for another rate hike of 25bps, to 0.50%, although seeing the vote from the BOE members, we could have ended up with a 50 bps rate hike.

Inflation has been surging in the UK as well, although it is behind the US. But, the BOW doesn’t want to wait too long, so they are tackling that problem now. This is bullish news for the GBP and the vote suggests that we might get another hike in the next meeting.

GBP/USD Analysis – Daily Chart

GBP/USD has turned bullish in anticipation of the BOE rate hike

Bank of England Interest Rate Decision

• BOE raises bank rate by 25 bps from 0.25% to 0.50%
• December rates were 0.25%
• Bank rate vote 5-4 (minority camp wanted to hike by 50 bps to 0.75%)

• Voted unanimously to reduce the stock of UK government bond purchases
• Bank rate still preferred tool for adjusting monetary policy stance
• Ramsden, Saunders, Haskel, Mann wanted to raise rates by 50 bps to 0.75% instead
• Rate hike needed due to current tightness of labour market
• There are also signs of greater persistence of domestic cost pressures
• Minority camp think pay and other pressures could be more persistent than forecast
• Minority camp believe that 50 bps rate hike would help check inflation expectations
• Statement summary

• Inflation peak seen at around 7.25% in April (previously around 6.00%)
• Inflation in two years’ time seen at 2.15% (previously 2.23%)
• Inflation in one years’ time seen at 5.21% (previously 3.40%)
• Inflation in three years’ time seen at 1.60% (previously 1.95%)

There are hawkish undertones all over the report but I reckon the biggest one is arguably the bank rate vote itself. It was a 5-4 vote with the minority camp wanting to hike rates by 50 bps to 0.75% instead of just the 25 bps performed today.

That pretty much tees up the next move for March and if inflation pressures keep up, I don’t see why there might not be a move when the time comes. Besides that, there is a bump to the peak inflation view and that also sort of heightens the urgency to tighten in order to keep inflation expectations in check for the most part.

Remarks by BOE Governor Andrew Bailey Press Conference

• Omicron expected to have depressed UK output somewhat in December and January
• UK consumer inflation roughly 1% higher than anticipated in latest report
• Inflation expected to increase further in the coming months
• Rising domestic cost pressures, driven by tight labour market, have pushed up inflation
• Upward pressure on inflation expected to dissipate as global energy prices stabilise
• There is still unusually high uncertainty on the economic outlook
• Will continue to monitor inflation expectations very closely
• This is not a standard demand-driven rate hike
• We have not raised rates because the economy is “roaring away”
• There likely will still be some further modest tightening in the coming month
• It is necessary to raise rates because inflation unlikely to return to target without it
• Size of rate hike was a close call among the MPC
• Need to keep rate hikes in perspective, UK rates still very low by historical standards
• Not in the territory of wage-price spiral on inflation

So far, there isn’t any added fuel to the fire as the remarks mainly underscore the more hawkish tone put out from the statement summary and details that we got earlier. We’ll see if he has any more to say but perhaps there isn’t much else that needs to be said already at this point beyond what we have gotten.