The Bank of England has raised Bank Rate by 50bps, but the MPC is divided. We think rates will reach 4.5% by early next year, and then expect a more aggressive cutting cycle than the market has priced.
- The Bank of England increased interest rates by 50bps, taking Bank Rate to 3.5%. This was in line with market pricing.
- Policy makers are clearly divided about the appropriate path of policy, with two voting for no change in rates at all, and one voting for a 75bps increase. This division is unlikely to fade anytime soon.
- In contrast to November, the Bank did not push back aggressively against market pricing in this meeting. While markets have moved more in line with the Bank’s signals, we suspect most policy makers still think the market path is too aggressive to achieve the inflation target over the medium term.
- We continue to think Bank Rate will reach 4.5% early next year, which is broadly in line with market pricing. Where we disagree with the market is the speed and the extent of the cutting cycle we expect to start in the second half of next year.