03/02/2022 was a super Thursday that didn’t disappoint. Decisions published only 45 minutes apart from each other from the European Central Bank and the Bank of England kept traders at their desks in a busy lunchtime. UK money markets had priced in all of a 25-basis point hike from the BoE for some time ahead of the decision. There were also very few anecdotal calls within the market defying the base case that the Monetary Policy Committee at the Bank would choose not to hike rates. GBP’s rally into the decision also signalled the market’s comfort surrounding the BoE.
As expected, at midday on Thursday, the MPC raised Bank Rate by 25 basis points. Despite seeming like plain sailing, the Bank of England managed to provide a hawkish spin even before the wording of the decision had been digested and despite the lack of press conference. The nine-person strong rate setting committee had four dissenting votes against the Governor and ultimately the committee consensus. Those four members, Michael Saunders, Dave Ramsden, Catherine Mann and Jonathan Haskel, voted to raise rates to 0.75% having each voted to raise by 15 basis points during the December meeting.
The release of the Bank of England decision therefore showed markets that there was a significant appetite to raise rates further and faster within the UK. Michael Saunders and Dave Ramsden’s vote for tighter policy was less surprising as the arch hawks of the committee, having consistently shown a preference to higher rates. However, the fact that the Committee almost delivered 50 basis points worth of interest rate hike so soon into the normalisation cycle caught the market off guard.
Expectations for faster tightening in the UK were rapidly priced in with GBPUSD reversing losses on the day. However, the excitement behind Sterling didn’t last long with the rally fading as the trading session developed as the changes in the ECB’s guidance eclipsed the BoE’s hike.
Discussion and Analysis by Charles Porter