BoE: Looking at a dovish hike - Danske Bank
31.10.2022, 16:24

BoE: Looking at a dovish hike - Danske Bank

On Thursday, the Bank of England will announce its decision on monetary policy. Analysts from Danske Bank expect the central bank to hike the key rate by 75 basis points. They see later, fewer hikes than priced in markets as they emphasise the weak growth outlook. 

Key Quotes: 

“We expect the Bank of England (BoE) to hike the Bank Rate by 75bp on 3 November bringing it to 3.00%. Markets are currently pricing close to 75bp. Given the past months immense sell-off in gilt markets, we see the hawkish camp prevailing as an opportunity to restore market credibility as inflation remains significantly above target.”

“We expect the Bank to return to its more dovish stance as recession risks are becoming more pronounced and the growth outlook is increasingly becoming weaker. Likewise, the BoE tends to ear on the side of caution, why we expect a return to smaller increment hikes.”

“We keep the rest of our forecast unchanged, expecting a 50bp hikes in December followed by a final 25bp hike in February 2023, which is fewer hikes than priced in markets (currently 270bps until August 2023).”

“In our base case of a 75bp hike, we expect EUR/GBP to move slightly higher on announcement. As we expect the BoE to highlight the gloomy growth outlook for the UK economy amid rising recession risk, we expect EUR/GBP to continue its move higher during the press conference.”

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