Super Thursday has certainly lived up to its billing with the Bank of England delivering what is only their second interest rate hike in over a decade this lunchtime, increasing the base rate by 25 basis points to 0.75%. The 9 member voting panel were unanimous in their view that a hike was warranted and the pound popped to the upside in the initial reaction. Overall the decision could be described as a little more hawkish than expected with the growth forecasts also raised slightly higher and the much-discussed R* estimate being towards the higher end of estimates in the 2.0-3.0% range.
Despite markets heavily discounting a hike, there remained an air of scepticism as to whether Governor Carney would actually deliver one, with those calling for higher rates having been disappointed on more than one occasion during his tenure. The most recent disappointment was in May when the Governor backed down on an increase after heavily hinting that there would be one, and in doing so lived up to his “unreliable boyfriend” moniker.
The press conference that followed saw the early gains in the pound erased and then reversed with the markets still seemingly of the opinion that the bank will continue to err on the side of caution as far as higher rates going forward are concerned. Despite the intentionally hawkish signals it appears that traders aren’t buying it, with a failure for sterling to gain on what is, on the face of it at least, a positive hawkish message, a potentially ominous warning sign for the currency going forward. Looking ahead, the curve has barely budged on today’s news with a further hike before year-end still seen as highly unlikely and and an additional increase not priced in until September 2019.