🏦🇬🇧Cable FX Macro Weekly Note: BoE August Monetary Policy Decision

**As seen in Risk In The Week report 07/28/23, subscribe at cablefxm.co.uk/reports

Back in June, the BoE voted 7-2 to hike rates by 50bps to 5.0%, this took to the Bank Rate to the highest since 2008, Dhingra and Tenreyro voted to keep policy unchanged. The central bank statement noted that inflation persistence would require further tightening, this came to be evident as the MPC delivered the largest rate hike since February. A tight labour market and sticky inflation were behind the BoE’s reasoning for the decision. Echoing May projections, the central bank sees Q2 growth flat while the Q3 projection of 0.25% was seen as uncertain. BoE Governor Bailey said that the U.K. economy is doing better than expected while inflation is the greatest challenge, he added that the BoE is not trying to trigger a U.K. recession. First quarter data saw output expanding by 0.1% Q/q, GFCF rose sharply by 2.4% while household consumption came in flat, and government consumption expenditure contracted by 1.8%. Economists’ median projection see U.K. real GDP growth rising by 0.2% in 2023 and 0.6% in 2024, inflation is expected to fall sharply to 3.0% by next year and hit the BoE target by 2025. Deutsche Bank expects the BoE to lift the Bank Rate by 25bps in August, they pencil in an 8-1 vote and added that risks are skewed towards three 50bps votes from the MPC. Deutsche does not expect the central bank to adjust forward guidance and noted that the market is pricing additional 120bps of tightening since the May meeting, they forecast a peak BoE rate at 5.75%.