UK: Hawkish Monetary Policy Committee puts a December hike on the table

The Monetary Policy Committee raised Bank Rate by 25bps to 4% on Thursday. December’s meeting now looks like a coin flip, with the path of oil and natural gas prices set to be the decisive factor

The committee’s messaging was more hawkish than before. Higher energy futures prices and more evidence of domestic resilience both increase the risk of second-round effects emerging. The degree of inflationary pressure already in the system means another hike is likely, in December or February.

The majority gave the impression that once Bank Rate reaches 4.25%, subsequent decisions will be a closer call. We continue to think that second-round effects on pay and margins will prove limited, so we maintain our forecast that Bank Rate will peak at 4.25%, but the risks are skewed to the upside.

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