Cable Spikes After Bank Of England Unveils Surprise Rate-Hike

Cable Spikes After Bank Of England Unveils Surprise Rate-Hike

Following The Fed’s hawkish comments yesterday, the Bank of England has unleashed what it calls “modest tightening” in monetary policy with inflation fears appearing to trump omicron anxiety.

By an 8 to 1 vote, the bank voted to raise its benchmark interest rate by 15bps to 0.25% (only Silvana Tenreyro voted against a hike, preferring to maintain Bank Rate at 0.1%). Additionally, by a 9-0 vote, maintained its bond-buying target.

BoE apparently is not concerned about omicron – and rightly so. More hikes to come everywhere around the world.

— Lars Christensen (@MaMoMVPY) December 16, 2021

The outcome was the second surprise in a row after November’s decision to stay on hold wrong-footed financial markets. Markets are now pricing in 30bps more hikes by Feb 2022…

Traders were pricing in around a 40% chance of a rate-hike and so this surprising move (hiking rates while still buying bonds) sent cable higher…

And gilt yields are spiking…

Policy makers said more “modest” tightening is likely to be needed as inflation heads toward a peak likely to be around 6% in April.

Meanwhile, the bank actually revised down their GDP forecasts for 2021 4Q by around 0.5% since the November Report (likely due to Omicron concerns).

By moving now, the BOE heeded a warning this week from the International Monetary Fund, which cautioned against policy inaction on inflation.  

Tyler Durden
Thu, 12/16/2021 – 07:10

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