BoE expected to hike rates by 25 bp – Danske Bank

Senior Analyst at Danske Bank Sverre Holbek assessed the upcoming BoE meeting, where consensus expects a 25 bp rate hike.

Key Quotes

“In contrast, the Bank of England (BoE) is set to hike the Bank Rate by 25bp to 0.50% at the November meeting - which markets also expect. The big question then is whether this is the start of an actual hiking cycle. In our view, this is more about taking back the emergency cut after the Brexit vote last year and not the beginning of a new hiking cycle for now, which should limit upward pressure on short sterling rates and GBP crosses”.

“With the market priced in some 90% for the hike, this should in itself only deliver limited GBP strength but a knee-jerk reaction in EUR/GBP to test the 0.88 level could be on the cards. If the BoE manages to convince the market that the hike is a one-off, the cross should stick to the 0.87-0.90 range, but we emphasise that there is a significant risk the BoE will fail to conjure up speculation on further near-term tightening. Coupled with negative EUR momentum post the ECB’s dovish taper, this heightens the risk of a move below 0.88 on the announcement”.