BoE likely to hike Bank Rate by 25 bps to 0.50 pct with 7-2 vote count, says Danske Bank

The Bank of England (BoE) is expected to hike the Bank Rate by 25 basis points from 0.25 percent to 0.50 percent at its meeting on Thursday (in line with consensus and market pricing). The shift is due to a combination of the low unemployment rate and high inflation, Danske Bank reported.

The vote count is likely to be 7-2, as Sir David Ramsden and Sir Jonathan Cunliffe have indicated that they think it is too early to hike. However, even Gertjan Vlieghe, who was previously considered very dovish, now seems to support a hike and most BoE members are seemingly inclined to vote with the majority.

It is worth noting what the BoE says about the current market pricing of BoE, as the BoE has a tendency to compare the current market pricing to the consensus view among BoE members. This is going to be very important for whether or not this is just a ‘one and done hike’, as markets have priced in a second hike by autumn 2018.

The still subdued wage growth also means that domestically generated inflation is not as high as actual inflation, which is pushed higher temporarily by the big fall in GBP, which again passes through to consumer prices only slowly.

"Finally, but not least, the ECB is not expected to hike before 2019 and has just extended QE by nine months (although slowing the buying pace) and we do not believe the BoE wants to tighten monetary policy too much relative to the ECB," the report said.