The Bank of England’s unexpectedly large interest-rate hike won’t be its last this year, according to money-market pricing.
(Bloomberg) — The Bank of England’s unexpectedly large interest-rate hike won’t be its last this year, according to money-market pricing.
The central bank defied economist and market expectations by raising its benchmark interest rate by a half percentage point Thursday. Traders are now betting on another such increase by September.
The market is pushing for more forceful action because the BOE’s tightening campaign so far has failed to slow inflation toward its 2% target. That’s even if it means inflicting more pain on households and companies.
“The BOE may have accepted that to achieve their inflation target, a recession may well be necessary,” said Jamie Niven, a fund manager at Candriam. “We fully expect the consumer to be hit hard, with the housing market a particular channel for potential stresses.”
The repricing kicked off after figures Wednesday showed consumer prices held at 8.7% in May, the fourth consecutive month of faster-than-expected data.
After Thursday’s meeting, traders were pricing another 75 basis points of tightening over the next two meetings. That would require one half-point hike alongside a quarter-point raise, spread out between August and September. The odds of it happening in August are already around 80%.
Policy makers led by Governor Andrew Bailey reiterated earlier guidance pointing toward higher rates in their statement, and said nothing to rein in market expectations. They have raised rates by almost five percentage points since late 2021.
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