BOE: BOE Hikes 25 bps; Sees Both Growth, Inflation Outlook Revised Higher

The Bank of England MPC voted 7-2 to increase their Bank Rate by 25bp to 4.5% at the May meeting, implying twelve consecutive rate hikes.

• Upside growth outlooks alongside stronger inflationary pressures underpinned the decision. 
• Underlying output is expected to be positive in Q1 and Q2 (when excluding bank holidays and strikes), with 2023 Q2 GDP upgraded to 0% (vs -0.7% in Feb) and +0.9% in 2024 Q2 (vs -0.3% in Feb).
• The May growth upgrades (which amounted to 2.25% over the forecast horizon) were the historically largest by the BOE. Lower energy prices, fiscal stimulus and recovering confidence underscored a markedly less-weak outlook. 
• This is despite only around one-third of the monetary tightening estimated to have already passed through to consumers (encompassed in the calculations).
• The BOE upgraded its inflation forecasts for the 12-month horizon, with 2024 Q2 CPI seen at 3.4%, up from 1.0% expected in the February forecasting round. 2023 Q2 CPI is seen 0.3pp lower at +8.2%.
• Wage growth and services CPI have been largely in line with expectations, with the bulk of upside revision due to stronger food inflation, currently running at a historical high. The MPC projection point to inflation risks as "skewed significantly to the upside".