On Thursday, the Bank of England (BoE) announced a 25 basis point rate hike to 4.25% as expected. Analysts at Danske Bank consider that with both growth and domestic inflation having surprised to the upside and given BoE’s message, they pencil in an additional 25 bps hike in May 2023.

BoE rate to peak at 4.50%

“As the 25bp hike was fully priced in by markets, the market reaction upon announcement was limited. 10-30Y was close to unchanged while 2Y rates were a few basis points lower. The market pricing of the peak policy rate was pushed slightly lower to 4.5% in August (from 4.6%).”

“We revise our call to expect the BoE to deliver a final 25bp hike in May. Our expectations are in line with current market pricing (currently 30bp priced until August 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 are pricing in 30bp of cuts during H2. We still believe that the first rate cuts will not be delivered before the beginning of 2024.