Bank of England hikes rates for the fourth meeting in a row

The central bank also downgraded its growth outlook as recession looms.

05 May 2022

Hot on the hiking heels of the US Federal Reserve, the Bank of England (BoE) reacted in a similar fashion to the recent uncomfortably high inflation data by hiking 25 bps in the base rate to 1%. End of the year estimates of where rates will stand are still pricing in five further hikes at every committee meeting to get us close to 2.25%. Of the nine officials, six voted for a 25 bps hike and three for a 50 bps hike, a tad more hawkish than expected. The BoE’s growth outlook for the UK has been downgraded, pointing to a 1% output collapse in the fourth quarter of this year as the cost of living crisis bites and further energy price caps are removed. For 2023, it now sees a full year contraction of 0.25%. So while normally a gloomy growth outlook runs anathema to hiking rates, the BoE knows it has to play a desperate catch-up in monetary policy. Sterling remains fairly unloved, falling against the dollar and the euro as markets price in an economy flirting quite finely with a recession sometime soon and with inflation running over five times its target. The governor of the BoE normally sends a letter to the chancellor when the target is missed but it would seem a novel might be more appropriate.