www.zerohedge.com By Tyler Durden
By Bas van Geffen, Senior Macro Strategist at Rabobank
The Bank of England managed to –again– catch markets by surprise, though this time by voting 8-1 in favor of a rate hike, moving the policy rate to 0.25%. The move leaves investors dumbfounded about the Bank’s communication strategy and reasoning. Back in November, the Monetary Policy Committee held off on a hike that was well-telegraphed ahead of the meeting, as policymakers judged that there was option value in waiting amidst high uncertainty about the outlook. It’s hard to see how the outlook has become any clearer between the November hold and yesterday’s hike, except for Omicron having spread rampantly around the country. Clearly, the Bank has moved the pandemic down its list of things to watch.
One of the main reasons to hike rates was the large increase in inflation. Inflation is certainly a valid concern, but as our UK Strategist argues, it remains the ‘wrong type’ of inflation. Moreover, it looks like the Bank seems to have ignored the trade-off that hiking interest rates in response to global price pressures means sacrificing domestic employment and output growth. The surprise move cemented the markets’ expectations of further hikes. We also believe that the MPC will hike again in the next few months, but expect the bank rate to remain at 0.50% until the end of 2022.
