BOE Hikes 50 Bps In 3-Way Split

The Bank of England hiked interest rated by 50bp to 3.5% at the December meeting, in line with market expectations.

• Inflation is expected to remain elevated in the near term, after cooling to 10.7% in November (vs 11.1% in Dec). CPI should fall sharply in mid-2023, yet risks for this declining path were judged to be to the upside.
• Despite further strength in wage growth, labour markets were seen as beyond peak tightness in the recent October data, implying softer labour demand which could limit the extent of pay increases and associated upwards pressure on inflation going forward.
• The economy had proven to be more resilient than expected, and uncertainty surrounds how long labour market resilience will persevere.
• GDP forecasts were upgraded by 0.2pp to -0.1% in Q4 2022, yet this is partially due to the boost given by the base-effects of additional Q3 bank holidays.
• Of the three dissenters, two voted for unchanged rates, stating that the Bank Rate was already "more than sufficient". The third dissenter (Mann) voted for a larger 75bp hike, highlighting that inflation expectations and wage settlements were cause for further front-loading.