In the first of two big central bank decisions today, moments ago the Bank of England hiked by 50bps - as expected - raising the overnight rate for a 10th time to 4%...

... in a 7-2 vote (the two doves on the committee Swati Dhingra and Silvana Tenreyro voted for no hike) which was a two-way split and not a repeat of December's bizarro three-way.

Looking at the statement, the Committee continued to judge that the risks to inflation are skewed "significantly to the upside"

At the same time the committee dropped language in its statement saying it could act “forcefully” in future, adding that further rate rises would only be needed if there were new signs that inflation would stay too high for too long, i.e., this was struck down: "the Committee continues to judge that if the outlook suggests more persistent inflationary pressures, it will respond forcefully, as necessary."

The BOE also said that If there "were to be evidence of more persistent pressures, then further tightening in monetary policy would be required" vs the previous comment that a "majority" of the Committee judges that further increases in Bank Rate may be required for a sustainable return of inflation to target.

The new statement, which makes further increases conditional on bad inflation news, suggests interest rates might peak at the new rate of 4%, lower than the 4.5% expected by financial markets.

Discussing the economy, the statement said that:

Looking at the BOE's MPR Forecasts, the 2023 inflation forecast was revised down, while 2023 growth view was revised up.

GDP Growth Forecasts:

Unemployment Rate Forecasts:

CPI Inflation Forecasts:

Since a 50 basis-point hike wasn’t fully priced in, the news offered some support to sterling at least initially. Yet it’s mostly the comments on inflation persistence and the vote split that sent the UK currency higher on knee-jerk flows. Cable briefly erased losses and now stands 0.2% lower on the day at 1.2348; it fell as much as 0.5% to 1.2311 before the policy decision.

Still not everyone was convinced the BOE decision was purely hawkish, with Vanda's Vitaj Patel noting that while the headlines are hawkish, the "key word in the statement is "IF there is more persistent price pressures... further tightening will be required". I think that's a pause & pivot from the BoE. Not entirely clear though. Presser will tell us more $GBP"

And indeed, after the initial hawkish reaction, markets realized that there was no attempt by the BoE to suggest that financial markets were misguided in expecting interest rate cuts later this year (not very much unlike Powell yesterday), even as the committee made it clear it needed to see evidence that underlying inflation was coming down and it was not yet declaring victory.

As a result, after initially spiking, cable has since dumped to session lows with markets starting to price in the possibility that the BOE's hiking cycle is now over.