BOE: Return to a slower rate of increases as the end of the adjustment cycle approaches – Danske Bank

On Thursday, the Bank of England (BoE) will announce its decision on monetary policy. The market consensus is for a 50 basis point rate hike. Danske Bank analysts expect the Bank of England to return to a more moderate rate of rise. They point out that a slightly dovish Bank of England and European Central Bank (which will also make a decision on Thursday) should push EUR/GBP higher during the day.

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“We expect the Bank of England (BoE) to hike the bank rate by 50 basis points on December 16, putting it at 3.50%. Markets are currently pricing slightly above 50 bp for next week’s meeting (55 bp ).CAs a result of a more balanced fiscal policy, market conditions have cooled and, in general terms, they have returned to the conditions prior to the mini-budget. So that, we expect a return at a slower rate of climbs“.

“In our base case of a 50 basis point rise, we expect EUR/GBP to rise slightly after the announcement.. In their statement, we expect the Bank of England to emphasize the dire state of the UK economy, which supports our view that market prices are too aggressive and that they currently cap the bank rate at 4.60% for August 2023. Combined with the expectation of a 50 basis point hike from the ECB in the late afternoon, we expect EUR/GBP to continue rising through the afternoon and end the day up half a point.”