Another Rate Hike Coming Early Next Year By Bank of England

After the rate hike announcement on Thursday from the Bank of England, analysts at Rabobank held on to their forecast of a much less aggressive tightening cycle than what is currently priced in front-end rates. They expect another 25 bps hike early next year.

The Bank of England MPC confused expectations of traders and economists once again as it decided to raise its policy rate by 15 bps to 0.25%. The vote was split 8-1.

Even though 15 bps is just a small step, the Bank of England is the first of the major central banks to raise its policy rate in order to limit upside risks to inflation-related expectations. Given that the market had come round to the idea the MPC would delay its first hike to February, it was a surprising move.

Along with the Fed’s pivot to inflation fighting, it illustrates that virus risks are not the central banks’ primary concern anymore. We do, however, hold on to our forecast of a much less aggressive tightening cycle than what is currently priced in front-end rates. We forecast another 25 bps rate hike in the next few months, but expect Bank rate to end the year at 0.50%.