The BoE has had a dovish hike. They hiked by 25bps with an 8-1 vote split. The dissenter voiced a key concern as BoE’s Cunliffe recognised the inflation risk, but also the cost to households with further rate hikes. The Bank of England picked up on the tensions that UK consumers are now feeling in the statement:

“Consumer confidence has, however, fallen in response to the squeeze on real household disposable income.”

Inflation expectations have been revised higher to 8% with the recognition that the current Russian/Ukraine crisis could further push up energy prices. As the UK is a net energy importer higher energy prices will mean slower growth. The BoE still expect inflation to fade over the medium term to little over 2% in two years time.

The BoE now recognise that modest tightening may still be set to come in further months, but that they could end up slowing growth by hiking too fast. In short, the BoE doesn’t want to be the cause of further slowing growth. With medium-term inflation risks still anchored over the medium term, this should be taken as a dovish shift from the BoE. The fact that one member dissented from the 25 bps rate hikes shows there is a real concern that the Bank does not hinder growth by pushing forward too aggressively. The STIR markets are still pricing in five 25 bps rate hikes this year, but that does seem too aggressive. So, in the medium term, the EURGBP should find dip buyers with the GBP likely to correct a little now after the latest BoE meeting. A low inflation print next week and we could expect the EURGBP to move higher still.