<ul><li><a target=“_blank“ href=“https://www.forexlive.com/centralbank/boe-raises-bank-rate-by-50-bps-to-175-as-expected-20220804/“ target=“_blank“>Prior</a> 1.75%</li><li style=““ class=“text-align-justify“>Bank rate vote 9-0* vs 9-0 expected (*Haskel, Mann, Ramsden voted for 75 bps, Dhingra voted for 25 bps)</li><li>Sterling has depreciated materially since August</li><li style=““ class=“text-align-justify“>Uncertainty around the outlook for UK retail energy prices has fallen after government’s energy support plan</li><li style=““ class=“text-align-justify“>Consumer spending is likely to have peaked in this quarter</li><li style=““ class=“text-align-justify“>Peak inflation is now likely to be lower than projected in August, at just under 11% in October</li><li style=““ class=“text-align-justify“>Policy is not on a pre-set path</li><li style=““ class=“text-align-justify“>Should the outlook suggest more persistent inflationary pressures, including from stronger demand, BOE will respond forcefully, as necessary</li><li><a target=“_blank“ href=“https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/september-2022″ target=“_blank“ rel=“nofollow“>Full statement</a></li></ul><p style=““ class=“text-align-justify“>There’s a bit of give and take in the latest policy decision by the BOE here. The split in votes obviously don’t help to give markets a sense of confidence on their resolve to tighten aggressively. Add that to the fact that market pricing had considered a 75 bps rate hike but we only got 50 bps, as per what economists expected.</p><p style=““ class=“text-align-justify“>But the good news comes from the fact that the BOE is offering up a more optimistic outlook on inflation. As for economic activity, they see Q3 GDP as being -0.1% q/q and that will infer a technical recession in the UK. But on the balance of things, the brighter inflation outlook perhaps matters more as they view peak inflation to be lower now.</p><p style=““ class=“text-align-justify“>Besides that, there is a subtle change to the forward guidance, which I would perceive to be offering them flexibility to act less aggressively i.e. move back to 25 bps rate hikes. In August, they noted that:</p><p style=““ class=“text-align-justify“>“The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.“</p><p style=““ class=“text-align-justify“>Today, the statement reads:</p><p style=““ class=“text-align-justify“>“Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary.“</p><p style=““ class=“text-align-justify“>It ties to their peak <a target=“_blank“ href=“https://www.forexlive.com/terms/i/inflation/“ target=“_blank“ id=“ad51a5a2-1afc-4f42-9e62-ea6faf6f90fa_5″ class=“terms__main-term“>inflation</a> view coming lower and while it’s no major change in policy stance, it is a subtle one as the words should and suggest do give them some leeway to work with moving forward.</p>

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