BREAKING: GBP drops after Bank of England hikes rates by 25 bp!

Bank of England announced its latest monetary policy decision at 12:00 pm BST today. Bank decided to hike interest rates by 25 basis points, putting the main interest rate at 5.25% - the highest level since April 2008. This was also what economists expected but money markets saw a small chance of a 50 bp hike.

As expected, decision was not unanimous with 8 members voting to hike rates and 1 voting to keep them unchanged. This is a more hawkish split than 7-2 at the previous meeting. 2 members - Mann and Haskel - voted to hike by 50 basis points while Dhingra voted to keep rates on hold. 

New forecasts showed 12-month ahead inflation at 2.8%, down from 3.4% in May survey, and 24-month ahead inflation at 1.6%, up from 1.1% in May. BoE also noted that wage data shows risks of more persistent inflation. GBP is expected to grow by 0.5% in 2023 and 2024 as well as by 0.25% in 2025. This is an upgrade to 2023 outlook but a downgrade to 2024-2025 outlook. Bank of England estimates a 0.1% QoQ expansion in GDP in Q2 2023, compared to flat forecast from June, as well as 0.4% QoQ expansion in Q3 2023. BoE said that while it does not forecast a recession the risk of one remains significant. BoE will decide next month on QT assets sales that will start from October 2023.

Money markets are now seeing an almost-70% chance of a 25 basis point rate hike at September meeting and an around-30% of no change in rates. Rate peak is priced in at slightly above 6%.

GBP dropped following the decision with GBPUSD moving to new daily lows at 1.2620.

GBPUSD deepened declines following in-line BoE decision and is approaching 1.2600 support zone. Source: xStation5