Bank of England governor dovish despite further rate hike

The UK central bank raised rates by 50 bps, but suggested that the “inflation battle had turned a corner”.

02 February 2023

In a similar vein to the Federal Reserve, what was initially seen as a hawkish hike announced by the Bank of England of 50 bps with expectations of further hikes to come, ended up being on balance a dovish press conference in which the governor, Andrew Bailey, said he was more hopeful that the inflation battle had turned a corner. So we saw wild swings in the currency markets with sterling up on the hike to then fall quite dramatically during the press conference. One more hike seems to be priced in now by markets either in March or May and then we see a short pause of a few months before rate cuts begin to surface again, in effect dealing with the now shallower (but longer) recessionary headwinds that the UK economy faces. Hence the minor sell-off in sterling and the sudden rush into gilts which remain well bid following today’s hike.