The Bank of England announcement is due on Thursday, 2 February 2023 at 1200 GMT (7am US ET) with Governor Bailey’s news conference following a half hour later.
Expectation are high that a+50 basis point hike is coming today. This would bring the over rate to 4% is the widely expected. It should be noted that there is a non-negligible risk of +25 basis point hike.
Analysts at Barclays concur, +50bp today followed by +25 hikes in both March and May. After the announcement attention will very quickly shift to the BoE commentary around the decision, and what can be gleaned on forward guidance.
The Bank is thought to be close to the end of this hiking cycle. Around 4.5% is expected to be the terminal rate (many are expecting lower though, that is not a unanimous call).
The odds of the UK central bank signalling the end of its tightening cycle look unlikely as Bailey & Company could say that they have yet to see a sustained downtrend in inflation towards its 2.0% target.
Economists polled by Reuters foresee one more rate rise to 4.25% in March while financial markets price in the rate hike cycle ending in the middle of this year at 4.50%.
Looking at the market reaction any moves after the BoE rate hike decision could be short-lived, as investors slowly digest the underlying tone in the statement and the vote split.
Governor Bailey’s is likely to trigger volatility in the British pound and its respective cross pairs. Sterling has been very muted after the Fed decision so it could come to life in a big way.
A surprise 25 basis point hike rate hike could sink the British pound and Sterling, bringing GBP/USD further south toward 1.2150. A split in the rate hike voting composition, with more MPC members favouring a 25-basis point hike.
Alternatively, GBP/USD could resume its uptrend toward the 1.2450 barrier and beyond should the Bank of England deliver the expected 50-basis rate hike, with 1.2600 the very top end of the upper weekly range.
