What’s priced in for the Bank of England

The market continues to anticipate a Bank of England rate hike later this month and the strong possibility of another one in November.

High UK inflation is problematic for the Bank of England as it tries to tame runaway inflation but chief economist Hew Pill wants to keep rate at a higher plateau for longer, rather than hiking further. In comments in South Africa last week he demonstrated a path that he compared to Table Mountain with a long period of rates around the current level of 5.25% and said he “tended to favour” it.

His projections also showed inflation falling to the BOE’s 2% target if rates were left at that level for three years.

That was too cryptic for the market as he also said that “core inflation remains stubbornly high and doesn’t show any obvious decline.”

The market is pricing in an 88% chance of a 25 bps hike on September 21 with a 44% chance of a hike at the following meeting in November. That would bring the BOE to 5.75%.