As expected, the BoE reverted to a 50 bp hike in December following November’s one-off 75 bp increase. Unlike the Fed and ECB, the BoE didn’t come across as particularly hawkish, simply maintaining its forward guidance that further rate hikes “may be required.”
Indeed, while the UK economy essentially flat-lined for much of 2022, the unemployment rate has ticked up only modestly. The latest PMI data suggest a softer employment backdrop going forward, though the BoE might have limited patience with private sector wage growth running close to 7% year-over-year. Our forecast continues to assume one more 25 bp hike in February leaving terminal Bank Rate at 3.75%, though risks are tilted to the upside if the BoE doesn’t see sufficient evidence that tight labour market conditions are easing in early-2023. - RBC
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