The Bank of England hike by 50bps

LONDON (Aug 4)  The Bank of England (BoE) has hiked by 50bps vs 50bps expected. There had been some analysts that predicted a 25bps hike. 

The vote split was 9-0 in favor of a hike. The majority of 8–1 to increase the Bank Rate by 0.5 percentage points, to 1.75%. One member preferred to increase Bank Rate by 0.25 percentage points.

The statement said that BoE forecasts show inflation at 9.53% in a year's time vs the May forecast 6.65%. This is said to be based on market interest rates and modal forecasts. 

In June, prices had risen by 9.4% compared to a year ago. That is well above our 2% target. On the plus side, the report said, "We expect inflation to begin to fall next year. It is unlikely that the prices of energy and imported goods will continue to rise so rapidly."

Ahead of the event, Lloyds Bank noted " Our base case forecast is for another 25 basis point rise, but there is a strong chance that the MPC will deliver a larger increase of 50bp and markets appear to be almost fully discounting such an outcome. There were hints of this at the time of the last update in June and since then comments from some BoE policymakers, including BoE Governor Bailey confirmed it as a possibility. Economic data since the June update have actually been mixed."

In a short-term reaction GBP/USD fell sharply to hit 1.2130.

KITCO