Following UK CPI - July 19th
UK investors shun bets for a 50 bps rate hike from the BoE in August, now seeing around a 65% chance of a 25 bps hike in August - OIS curve.
Welcome news on UK inflation has taken a fair amount of pressure off the Bank of England to repeat the 50 basis point rate hike it implemented in June. Services inflation, a key metric for the Bank, dipped back in June’s data, against BoE expectations for it to remain unchanged.
In short, there’s just enough in the latest data flow for the Bank to be comfortable reverting back to a 25bp hike in August.
We shouldn’t rule out a 50bp hike though, especially if the committee concludes they think they’ll hike again in September. At the ECB’s recent Sintra conference, Bailey explained that this logic partly drove the Bank to enforce a 50bp hike last month.
"It's a close call, but we now think the MPC will settle for a 25bps hike, lifting Bank Rate to 5.25%," analysts at Deutsche Bank said.
“We are expecting the BoE to revert back to delivering a more normal 25bps today although acknowledge that another larger 50bps hike can’t be ruled out depending on the updated MPR forecasts,” says MUFG analyst Lee Hardman.
Comments and Predictions:
Poll: BoE to raise bank rate 25 bps to 5.25% on August 3, said 42 of 62 economists, 20 said 50 bps rise. (July 25th)
IMF: The US Fed and BoE are expected to raise interest rates by more than assumed in April, before cutting them in 2024. (July 25th)
Traders pare BoE hike bets, putting odds on a 6% peak at 50%. (July 24th)