BoE hikes 75bps but believes market pricing is too high

The BoE raised Bank Rate by 75bps to 3% at its November meeting, in line with our expectations and market pricing. But the MPC sent a clear message that market pricing further out is too high.

What you will learn:

• The MPC continues to target policy at a key risk – that high inflation becomes embedded – rather than being consistent with its central forecast, which shows a massive undershoot of the inflation target. But with the MPC giving its clearest guidance yet that market pricing is too high, we continue to expect Bank Rate to peak at around 4%.
• The precise peak in Bank Rate will be heavily influenced by how much and how fast the government tightens fiscal policy on November 17. The numbers being briefed to the media by government officials suggest fiscal policy will be tightened aggressively, implying the risks to our forecast for Bank Rate are becoming more skewed to the downside.