BoE: A final 25bp hike in store for March – Danske Bank

On Thursday, the Bank of England (BoE) hiked the policy rate by 50 basis points to 4.00%. Analysts at Danske Bank expect the increasingly weak growth outlook to support a near-term ending to the hiking cycle.

Key quotes:

“EUR/GBP initially moved lower upon announcement but quickly retraced as expected with the more dovish nature of the statement. Followed by a less than expected hawkish ECB EUR/GBP is back close to opening levels. We continue see a case for the EUR/GBP cross to move modestly lower in the coming year as a global growth slowdown and the relative appeal of UK assets to investors are a positive for GBP relative to EUR.”

“We continue to expect the BoE to deliver a final 25bp hike in March. Our expectations fall below current market pricing (currently 34bps until June 2023) as we expect the rest of the BoE committee to increasingly turn less hawkish amid a weakening growth backdrop and easing labour market conditions. Markets is pricing in 40bp of cuts during H2, while we keep our forecast of the first cut to be delivered in the beginning of 2024.”