In a 6-3 vote, the Bank of England (BoE) maintained the current Base Rate at 15-year highs of 5.25%. According to the minutes, MPC members Megan Greene, Jonathan Haskel and Catherine Mann voted to increase the rate by 25bps, unchanged from November’s meeting. As a reminder, there will be no presser for the BoE today.

Notable Takeaways from the Policy Statement’s Guidance:

• The release repeated that the policy rate will need to remain in restrictive territory for ‘sufficiently long’ to return inflation back to the 2.0% target.

• The decision to increase/pause was finely balanced.

• Further policy firming would be necessary in the event of ‘persistent inflationary pressures’.

In a separate statement, BoE Governor Andrew Bailey commented that there is still some way to go before inflation returns to the central bank’s 2.0% inflation target.

Market Pricing

OIS swaps are pricing around 109bps of cuts for 2024 versus 115bps before the rate announcement. There is also now around a 78% chance of a rate cut being seen in May next year, with the odds of a rate cut in March dropping as low as 30% probability.

Market Reaction

Market reaction witnessed a solid GBP bid against the US dollar, with moderate upside seen thereafter to a high of $1.2720ish. This pulled the currency pair to the 61.8% Fibonacci retracement ratio of $1.2720 (derived from the high/low of $1.3142/$1.2037) and nearby November tops around the $1.2733 neighbourhood.

Gilt yields also rallied—the 10-year yield popped to 3.770% following the announcement—with the FTSE 100 paring recent gains and dipping to a low of 7,673 as of writing.

Charts: TradingView

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