In this live market commentary, the hosts analyze the Bank of England’s February 2022 monetary policy decision, which delivered a 25 basis‑point rate increase (9‑0 vote) amid a backdrop of historically rare back‑to‑back hikes—the first such sequence since 2004. They explain that UK CPI stood at 5.4% in December 2021, the highest since 1992, driven by soaring energy prices, supply‑chain disruptions and low‑base effects. Four MPC members (Ramsden, Saunders, Haskell, Mann) dissented, advocating a larger 50‑bp hike to 0.75%, a surprise that sparked an immediate pop in GBP/USD futures. The panel also cut the corporate‑bond‑purchase target to zero, signaled the start of QE unwinding, and hinted at possible gilt sales once the policy rate reaches 1%. Market participants have already priced the BoE’s rate at 1% by year‑end and anticipate another 50‑bp move by May. The hosts discuss the upcoming energy‑price‑cap increase of 54% (≈£700 per household) and its inflationary impact, as well as short‑term inflation forecasts (≈2.15% in one year). The commentary concludes that the BoE is likely to continue a hawkish tightening path in the coming months.
Chapters
Okay, welcome back to the channel, and we've just got a couple of minutes until the latest Bank of England interest rate decision. Just looking at interest rates here in the UK over the last 20 years, what's going to be particularly interesting from a historical standpoint is today markets are very much expecting them to increase interest rates again for the second consecutive meeting. And as you can see here, rates haven't risen in back-to-back meetings since going back all the way to the initial rate sequence that we saw back in 2004. So it's quite meaningful from that perspective. Why and what's the main rationale for this? Well, actually CPI has been the main culprit, and we know that UK CPI came in at 5.4% at the end of last year, December 2021. It's the highest reading since March of 1992. Inflationary pressures persisting, naming from, uh, namely from rising energy prices, supply chain disruptions, and low base effects from the previous year. So much in a similar vein to the Fed, the market's been quite aggressive in pricing in tightening of a fairly rapid pace coming from the Bank of England. Now, a few other quick things. As I just mentioned, markets are very much expecting rates to rise today. In fact, they're close to pricing in 1.5% interest rate by the end of the year, implying the biggest tightening of policy in a calendar year since 1997, if that was to materialize. So One of the key things we're looking out for here is, of course, the rate announcement, the vote split expected to be unanimous. But we've also got the minutes and then the commentary that we'll hear alongside this as it comes out, because this is the February meeting. So we'll also get the monetary policy report looking at projections for growth and inflation to determine their rate path in the future. Biggest thing to look out for here is any pushback against this very aggressive market pricing. Okay, we've just got Couple of seconds till it comes out. So I'm going to turn on the squawk so you can hear everything coming out live. 10 seconds. Okay. I have in front of me here the cable chart, cable futures, sterling dollar. About 5 seconds now to the release.
25. That's 25 as expected. And that was a 9-nil vote. That's a 9-nil vote there.
So hike is expected, unanimous as expected.
Interestingly, though, Ramsden, Saunders, Haskell, and Mann voted to raise rates by 50 basis points to 0.75%. So although they were unanimous that it needed to hike, there was a divergence in views there. The likes of Ramsden, Saunders, Haskell, and Mann opposing to raise rates by 50 basis points to 0.75%. Immediate upside in cable now breaching 136 to the upside. They also voted 9-0 to reduce corporate bond purchase target to zero from £20 billion.
Yes, at the moment, just while the squawk continues to go, the biggest reason for that pop there is that there were a couple of members who wanted an immediate 50 basis point rate hike. So really ramping it up the pace. And that was very unexpected. No real economists on the street were expecting that type of move. In fact, there were 4 Bank of England dissenters who all wanted a 50 basis point rise to 0.75%. So although the decision was unanimous, they all wanted a hike. 4 of them, so only just outvoted by 5 to 4, wanted to go even more aggressive. So hence the pop we've seen here initially in price.
In terms of the inflation forecast in 1 year's time, I've seen 2.15% down from the November forecast of 2.23%. 3%. Oh, that's the 2-year forecast. In 1 year time, that's the—
okay, just switching my screens for a moment. One of the interesting things here is that this is looking at the MPC breakdown by the dovishness or hawkishness that the market typically assigns to these members. And we had 4 dissenters all looking for 50 basis points of increase here, and those were Ramsden and Saunders. So they've always been the far-reaching, most hawkish members. That's come as very little surprise. But what is a bit of a surprise is The other ones are Haskell and Mann. Jonathan Haskell sits here on the spectrum. Catherine Mann sits here. And so rather than Hugh Pill, the chief economist, or Bailey himself, or Broadbent, it's actually some of those more on the dovish side disposition that actually wanted more aggressive near-term action, which is quite surprising. Here are the Bloomberg headlines. So as you can see, other than the ones we've just covered, they begin the QE unwinding. They plan to fully unwind stock of corporate bond purchases. So yeah, overall initial take is this is pretty aggressive in terms of on the hawkish side. They'll consider actively selling gilts when the key rate is at 1%. Further modest tightening is likely in the coming months is the type of language that they're using. So in terms of market pricing now, the market has pulled forward their Bank of England hike bets. They now see the bank rate at 1%. By May. So again, a surprise here, they've taken it from a quarter basis point to half. So the market expecting another 50 basis points by May. May would be when the next monetary policy inflation report comes out. They come out 4 times a year: February, May, August, and November. Quick look here on a 90-minute candlestick just to give us some perspective on the price action. The overall move certainly is a big pop on the initial intraday move, but it's not huge, I would say. I mean, we've gone from around 135.50 up to around 36.27, and you can see here the R2 just providing in the futures a little bit of near-term resistance. But yeah, a, a bit of that magnitude, 75 pips or so. It's not by far the biggest I've ever seen, but certainly there's enough ammunition in these hawkish comments to provide that move. The real crux of where we end now really comes down to the press conference, which will begin shortly. Just while we wait for the press conference, obviously one of the things that this would indicate then is that they're probably going to be more subsequent rate hikes from the Bank of England in the coming months. And something that's really grabbing the headline news today is tied to what is this inflation, um, focus that they have, and that is the electricity and gas bills typically, uh, for a typical household are going to go up by 54% it came out earlier today, equates to around £700 a year or so in April. Every 6 months, to give a context to what this is and what this energy price cap is, is every 6 months Ofgem, the energy regulator, reviews and reviews the maximum price that suppliers in England, Wales and Scotland can charge domestic customers on a default or standard or variable tariff. And so this is when they set out on these semi-annual reviews what the price cap is at that moment in time. And about 15 million households saw their energy bills increase by 12% when it was last updated— updated, excuse me— in October. And now they're going to go up by 54%, and prices were very much well expected to go up again in October when the cap is next reviewed. So again, the big component of course is namely rising energy prices that are contributing to this CPI number, 5.4%. I have seen Wall Street banks predicting that inflation in the UK could go as high as 7%. So obviously still a long way to run, and would give the rationale then of why some of these Bank of England members wanted to be uber-aggressive with their go-hard, go-strong, go-fast mentality to get ahead of that problem, for it then to tail off and not have to play catch-up later down, down the line.
