BoE – another hawkish hold?

Rates held at 5.25%, bringing an end to the succession of rate hikes going back to Nov ‘21 QT of £100bn announced:

• Market reaction clear enough with GBPUSD making a fresh daily low and new 6-month low around 1.22343, FTSE 100 – which was trading down on a broadly risk-off session post-Fed - jumping above 7,746 before trimming daily gains to trade flat at 7,730 and then giving back some more to retest 7,700 support.  FTSE 250 also rallied before giving back gains – is the bad news on growth meaning good news on rates? Probably not since the message is higher for longer.
• Nov rate hike expectations fall to 64% from 81% before the decision
• Not seeing a massive move in rates, gilt yields mixed with 10yr ticking up to 4.281% and the 2yr paring gains to 4.873%

I don’t know if we categorise this as a hawkish hold – what's appears clear is that the BoE saw the CPI print coupled with soft growth figures and thought it’s enough to warrant holding fire for the time being. The vote was split 5-4, a tight call that was reflected in the market pricing ahead of the event.

If they really think that the disinflation seen in the Aug CPI is enough to declare victory then they are wrong. CPI inflation fell from 7.9% in June to 6.7% in August, which is ‘good news’ but the core stickiness is not really budging fast enough - Core goods CPI inflation fell from 6.4% in June to 5.2% in August, which the BoE notes was much weaker than expected in the August Report. Services CPI inflation rose from 7.2% in June to 7.4% in July but declined to 6.8% in August, again below the Bank’s own forecasts.  

If they think they want to await more incoming data then maybe they are right. Maybe more than the CPI they are looking at the weak growth data and starting to fret they have already done too much?  

As per the Fed and ECB, it’s very much less of a case of how high as how long – the decision to pause today confirms that the BoE is falling in line with peers – the emphasis now is on duration not the absolute level.

• Expects inflation to fall “significantly” in the near term
• Underlying H2 growth weaker than expected
• Labour market still very tight
• Interesting to note that members felt that the decline in the August services inflation was down to one-off factors...so why pause now?
• Bailey says no room for complacency – no because you’ve filled that room up plenty already
• Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.

Meanwhile Turkey’s central bank raised its one-week repo rate by 500bps to 30%!! That is how to do it!