• Prior 1.25%
• Bank rate 9-0* vote vs 9-0 expected (*Tenreyro voted to raise rates by 0.25%)
• Labour market remains tight, domestic cost and price pressures elevated
• Estimates Q2 GDP to fall by 0.2% (June forecast was -0.3%)
• Sees Q3 GDP increasing by 0.4%
• Risks surrounding projections are exceptionally large at present
• Inflationary pressures are nevertheless expected to dissipate over time
• But there is a risk that a longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures
• Policy is not on a pre-set path
• BOE will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response
• Full statement

After a bit of a whipsaw, the pound has fallen on the decision as the BOE takes a page right out of the RBA playbook. In terms of the forward guidance, they added the passage that „policy is not on a pre-set path“. As for the inflation outlook, the BOE sees consumer inflation overshooting towards 11% with a staggering peak of 13% in the UK.

On the economy, the BOE views five quarters of negative GDP starting from Q4 2022 – the longest recession period since the global financial crisis. Oof.

All in all, this still reads out more like a one-and-done 50 bps rate hike considering the economic outlook. Cable has fallen down to 1.2095 at the moment.

This article was written by Justin Low at www.forexlive.com.