Economist at UOB Group Lee Sue Ann reviews the latest interest rate decision by the BoE.
“The Bank of England (BOE)’s Monetary Policy Committee (MPC), at its meeting in Sep, voted by a majority of 8-1 to increase the Bank Rate by 50bps to 2.25%, its seventh consecutive policy meeting since Dec that it has raised its key interest rate. Once again, the BOE warned that ‘policy is not on a pre-set path’, though it will act forcefully in response to persistent inflationary pressures. Notably, this is the first time since the great financial crisis, a three-way split was seen.”
“But with some more hawkish MPC members citing worries about rising short and medium term inflation expectations, we are now expecting the BOE to increase rates to 3.25% by year-end (50bps hikes at the Nov and Dec meetings), before taking its foot off the brakes in this current hiking cycle.”
“While financial markets are pricing a Bank Rate of close to 5% next year, we think that market expectations of rate hikes are overdone, and the latest split outcome within the MPC reinforces our view those expectations are unlikely to be met. We will, nonetheless, continue to monitor developments. The next monetary policy meeting is on 3 Nov.”
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