BoE: A larger hike but updated guidance to weigh on the pound – MUFG

The Bank of England (BoE) will unveil the monetary policy decision at 12:00 GMT. Economists at MUFG Bank expect the British Pound to continue weakening after the announcement.

Market expectations for further hikes are likely still too aggressive

“We expect the BoE’s updated inflation projections to continue signalling that inflation is expected to fall back well below target by the end of the forecast period when incorporating market expectations for the BoE’s policy rate for the coming years.”

“Yields still remain significantly higher than when the inflation forecasts were last updated in August when the BoE’s policy rate was expected to peak closer to 3.00%. The sharp adjustment higher in UK yields since August will reinforce downside risks to growth in the UK and help to dampen inflation risks in the medium-term.”

“We expect the BoE to signal that a larger hike today is unlikely to be the first of a series of larger hikes and that market expectations for further hikes are likely still too aggressive. It should encourage a weaker Pound and reinforce the move lower in Cable.”

See – BoE Preview: Forecasts from 10 major banks, big rate hike in doubt