BOE Signals Dovish Note in Commentary After Rate -2-

Pound Trims Initial Post-BOE Gains on Prospect of Pause in Rate Rises

1258 GMT - Sterling trims its initial gains after the Bank of England raised interest rates by 25 basis points to 4.25% Thursday as the central bank's inflation projections indicate it could soon pause its rate rise cycle, IG says. The BOE might pause rate rises given its expectations that inflation will fall sharply over the rest of this year, IG analyst Chris Beauchamp says in a note. "Traders are right to be sceptical on this, and as with last night's Federal Reserve [decision] it seems there will be a much more meeting-by-meeting approach, rather than risking credibility by sticking dogmatically to a set path." GBP/USD is last up 0.4% at 1.2313 and EUR/GBP falls 0.1% to 0.8844. (renae.dyer@wsj.com)

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UK Economy Needs New Dynamics to Overcome Underperformance

1256 GMT - The U.K. is in an economic "danger zone" and needs bold plans to break a high tax and low growth loop, Charles White Thomson, chief executive officer at Saxo UK, says in a note after the Bank of England raised the bank rate by 25 basis points to 4.25%. "The U.K. continues to underperform its key counterparties and have underserved the majority and their aspirations," he says. He sees the U.K.'s economic situation as increasingly painful and uninspiring, and says no one should be celebrating recent monthly GDP growth of an anaemic 0.3% and the avoidance of a technical recession. In its assessment, the BOE said uncertainties around the financial and economic outlook had risen. (emese.bartha@wsj.com)

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UK Gilt Yields Stay Steady After BOE Rate Rise

1252 GMT - U.K. gilt yields are relatively unchanged after the Bank of England's 25 basis points rate increase as markets expect the BOE to pause rate increases going forward. "In monetary policy terms we are now gradually leaving the theatre of action and entering a period of circumspection," says AJ Bell head of investment analysis Laith Khalaf in a note, "This is likely to mean interest rates plateauing from here, or only modest, less frequent adjustments being made by the central bank," he says. The U.K. 10-year gilt yield last trades at 3.424% compared to 3.422% prior to the BOE announcement. The U.K. 2-year gilt yield last trades at 3.376%, compared to 3.375% beforehand. (miriam.mukuru@wsj.com)

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BOE's Rate Rise Shows Priority Focus on Inflation Fight

1248 GMT - The Bank of England's decision to raise the bank rate by 25 basis points, following in the Federal Reserve's footsteps, shows that the Monetary Policy Committee is focusing on its inflation-fighting mandate rather than financial stability risks, Jessica Hinds, director in Fitch Ratings' economics team, says in a note. This stance "will have surely been cemented by the inflation data earlier this week," she says. While the MPC stated that further tightening will depend on evidence of more persistent inflationary pressures, Fitch Ratings' economics team thinks that the tightness of the labor market will keep services inflation too sticky for the BOE to be confident that it has done enough. (emese.bartha@wsj.com)

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BOE Should Refrain From Guidance Given Inflation Uncertainty

1238 GMT - The Bank of England should refrain from offering forward guidance about its future rate policy, having frequently signaled that they expect interest rates to peak at current levels but then inflation data has proved otherwise, Karen Ward, chief market strategist, EMEA, at J.P. Morgan Asset Management says in a note. After February inflation surprised to the upside, the persistence of inflation looks more worrying in the U.K. than elsewhere, reflecting that a combination of Brexit, the Covid-19 pandemic and an energy crisis appears to have done more lasting damage to the supply side of the economy, she says. The central bank should leave itself degrees of freedom by simply stating they will do whatever it takes to bring inflation down, she says. (edward.frankl@wsj.com)

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BOE Could Lift Rates Further But End of Cycle Nearing

1236 GMT - The Bank of England could raise interest rates further after Thursday's 25 basis points rise but the end of monetary policy tightening is nearing, Charles Stanley says. The U.K. government's budget earlier this month showed the Office for Budget Responsibility expects inflation to fall to 2.9% by the end of 2023, compared to 10.4% in February, but this target looks ambitious, Charles Stanley chief investment officer Garry White says in a note. "This means there may be at least one more rate rise ahead, but we are probably close to the top of the cycle," he says. "However, if this 2.9% target is to be met, interest rates may not be coming down for quite some time." (renae.dyer@wsj.com)

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BOE's Rate Rise Could Be the Last Before a Pause

1235 GMT - The Bank of England "had no choice" but to raise interest rates by 25 basis points to 4.25% on Thursday given high inflation but this could mark the final increase before a pause, says Richard Carter, head of fixed interest research at Quilter Cheviot, in a note. "It will be hoped this will be the final rate hike before a period of pause to assess how the rate hikes are taking effect," he says, noting that the economy is expected to contract this year. "Inflation is proving sticky so it is hard to say if this is the end, but consumers up and down the country will be hoping for some relief when the Bank of England sets rates again in May." (jessica.fleetham@wsj.com)

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BOE Will Soon Need to Focus on Banking Sector, Credit Conditions

1235 GMT - The need to counteract high inflation is "paramount" for the Bank of England, which raised interest rates by 25 basis points on Thursday, but it will likely need to turn its focus to banking sector problems and tightening credit conditions, says Neil Birrell, chief investment officer at Premier Miton Investors in a note. "Policy needs to remain flexible," he says. "None of those issues are going away in a hurry and the tightrope they are walking with policy has got tighter over the last two weeks." (emese.bartha@wsj.com)

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(END) Dow Jones Newswires

March 23, 2023 10:37 ET (14:37 GMT)

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