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BoE raised rates 25bps to 0.5%, entirely as expected. Sterling is higher, with GBPUSD leaping above 1.36 in a sharp bullish leg up. Gilt yields also spiking higher. The FTSE 100 fell to a low of the day at 7,550 in what’s likely to be a sterling correlation move. The FTSE 250 also dipped to the LOD…but I have no sense that gradual normalisation of interest rate policy should really weigh on UK growth…more small repricing and machine-led move.

Key points from today’s BoE rate statement

• Bank rate +25bps to 0.5% – the first back-to-back rate hikes since 2004, with a unanimous decision to raise interest rates (though there were some calling for more).
• Passive QT begins as the MPC agreed to cease to reinvest any future maturities falling due from its stock of UK government bond purchases
• Inflation outlook raised to peak at 7.25% in April, from 6% in December…still a little shy of where it really goes?

What to make of it all? Well I’d say there is something in this for both the hawks and doves.

Four members (Jonathan Haskel, Catherine Mann, Dave Ramsden and Michael Saunders) voted for a 50bps hike…which is pretty hawkish by most measurements….

…but the guidance was not inarguably hawkish, in fact rather timid still: Overall the MPC is not in a rush and still seems pretty relaxed, not allowing the market to think too hawkish, for example sticking with the line that “some further modest tightening in monetary policy is likely to be appropriate in the coming months”, also noting that it continues to see “two-sided risks around the medium-term inflation outlook”.

It’s the 4 voting for 50bps up against the timidity of the forward guidance that has left traders still guessing somewhat as to the Bank’s real intentions. Communication still a C-

Cable: more upside…bullish trend about to reassert itself with imminent MACD crossover?

GBPUSD Chart 03.02.2022

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