Bank of England Hikes Rates Again, GBP Reacts Higher

BOE Increases Rates

Bank of England increased interest rates to 0.5% (from 0.25%) as widely expected today, with a thin 5 to 4 majority. Four out of the five members of the Monetary Policy Committee (MPC) wanted a bigger rate hike of 50 bps, to 0.75%, showing more hawkishness. [1]

This is the second straight rate hike, following December's lift-off, which had surprised many investors. Furthermore, December's decision had not been unanimous either, since Ms Tenreyro had opted for maintaining rates.

The bank's actions are mainly driven by high inflation, which is way past the 2% inflation target. Consumer Price Index surged 5.4% year-over-year in December, from 5.1% prior.

Based on November's projections by the BoE, inflation was not expected to reach the 5% region until April, while in December, the bank had said that it expected inflation to peak at 6% in April. Based on today's release it sees even higher inflation, expecting it to peak at 7.25% in April.

The Monetary Policy Committee also voted unanimously to begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets, as per its August commitment do so when interest rates had risen to 0.5%.

It also reaffimed that it will consider beginning the process of actively selling UK government bonds only once Bank Rate has risen to at least 1%, and depending on economic circumstances at the time.

GBP/USD initial reaction was higher, while markets now turn to Governor Bailey's press conference.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.



Retrieved 23 Jun 2022


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