Barclays Research continue to expect 50bps hike from the BoE at tomorrow's meeting.

Main Points:

1. Rate Hike Expectation: Barclays reiterates its expectation for a 50 basis points (bps) rate hike by the Bank of England (BoE) in the upcoming meeting scheduled for 3 August. If their prediction holds true, this would take the Bank Rate to 5.5%.

2. Rationale for the 50bps Hike: Barclays believes the BoE's decision to hike by 50bps in June indicates a strategic shift in the bank’s reaction function. They attribute this shift to:

   • Signs of sustained second-round effects on inflation.
   • The BoE's opportunity to fortify its credibility in managing inflation.
   • Risk management considerations.

3. Voting Split Projection: The bank forecasts an 8-1 split in favor of the 50bps rate hike versus maintaining the current rate. They expect Dhingra, an external member of the Monetary Policy Committee, to remain a dissenting voice, advocating for unchanged rates.

4. Forward Guidance: Barclays anticipates that the BoE will not alter its forward guidance. The current guidance already communicates a conditional stance on the possibility of further rate hikes.

Summary:

Barclays maintains its stance that the Bank of England is poised for another 50bps rate hike in its forthcoming meeting on 3 August, taking the Bank Rate to a projected 5.5%. This expectation is grounded in recent shifts in the BoE's policy response, growing concerns about inflationary pressures, and the opportunity for the central bank to bolster its inflation-combatting reputation. The anticipated voting pattern reflects a strong consensus for the hike, with only one expected dissent. The forward guidance from the BoE, as per Barclays, will likely remain consistent with its current stance.