BOE Likely to Scale Back Rate Increase in February -2-

1229 GMT - Sterling extends its losses after the Bank of England raised interest rates by a widely-expected 50 basis points to 3.5%, although two BOE members voted to leave rates unchanged while one preferred a 75bp rise. "The fact that BOE members are not on the same page with respect to the bank's monetary policy has created more confusion for traders," AvaTrade analyst Naeem Aslam writes. Higher rates will also worsen the cost of living crisis and hurt the economy, which is another reason sterling is weaker, he says. GBP/USD falls to as low as 1.2288 after the decision from 1.2335 beforehand and EUR/GBP rises to as high as 0.8640 from 0.8616 beforehand. ([e-mail])

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BOE's Stance Signals Lingering Inflation Risks

1240 GMT - The Bank of England's interest-rate increase and the fact that the majority of its committee members see more rises ahead suggest inflation risks are far from over despite a fall in November, BlackRock Investment Institute's U.K. chief investment strategist Vivek Paul says in a note. "Goods inflation came down as consumer spending normalizes from the dramatic pandemic shift, but services and wage price pressures remain persistent and at multiples of their target level," he says. In this context, the Bank of England is expected to tighten monetary policy further in 2023 despite a weakening economic outlook, he says. ([e-mail])

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BOE Faces Tougher Dilemma Than Peers

1243 GMT - The division within the Bank of England, as demonstrated by Thursday's split interest rate decision, shows the BOE has a tougher dilemma than other central banks, Principal Asset Management says. The BOE raised rates 50 basis points to 3.5% but two members preferred unchanged rates and one voted for a 75bp rise. The U.K.'s constrained labour supply suggests inflation will be persistent and requires aggressive action but the nation also faces a difficult economic backdrop, Principal AM strategist Seema Shah says in a note. "While the three-way split is testament to the impossible nature of the central bank's challenge, unfortunately it doesn't provide the impression of clarity, credibility or stability that the U.K. desperately needs right now." ([e-mail])

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BOE Isn't Out of Woods Despite Fall in Inflation

1245 GMT - The recent fall in inflation no doubt played a role in the Bank of England feeling ready to reduce the pace of tightening to 50 basis points on Thursday but the U.K.'s inflation troubles isn't clearly behind it yet, says Karen Ward, chief EMEA market strategist at J.P.Morgan Asset Management. "Inflation may be coming down but it would be premature for the BOE to claim victory in the fight over inflation," she says in a note. The BOE may be able to moderate the pace and speed of interest-rate rises but JPM AM believes the peak is at least 100bps away. ([e-mail])

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BOE's Split Vote Reflects Tough Decision, Likely to Be Cautious in 2023

1245 GMT - The Bank of England raised interest rates by 50 basis points to 3.5%, as expected, but a split vote in which two of the nine policymakers voted to leave rates unchanged while one preferred a 75bp rise shows how tough the decision was, says Hussain Mehdi, macro and investment strategist at HSBC Asset Management. "The bank finds itself in an increasingly tough spot," he says in a note. "Emerging recession and financial stability concerns are balanced against ongoing wage pressures which risk embedding inflation," which is reflected in the wide range of votes. The BOE is likely to "tread a more cautious path in 2023" as it assesses the impact of previous rate rises on a weakening economy, he says. ([e-mail])

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BOE's Split Views Send Sterling Lower

1249 GMT - Sterling's negative reaction to the Bank of England's interest rate decision Thursday reflects the split views among the Monetary Policy Committee, GAM Investments says. The BOE raised rates by 50 basis points to 3.5% but two members preferred unchanged rates and one voted for a 75bp rise. "This helps explain sterling's weak reaction to the hike," GAM investment director Charles Hepworth says in a note. "With an increasingly discordant committee, future hikes at subsequent meetings might not seem as obvious even if ongoing inflationary pressures should continue to direct the Bank's actions." GBP/USD falls 0.8% to 1.2332 and EUR/GBP rises 0.2% to 0.8614. ([e-mail])

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Victorian Plumbing Might Have Margin Gains in Pipeline

1321 GMT - Victorian Plumbing's track record is improving and it has scope for gross margin gains, Barclays says, upgrading the online bathroom retailer to overweight from equal-weight. The company's investment case is worth revisiting given an improving track record bolstered by clear long-term conviction, Barclays says in a note. It also points to impressive market-share gains, strong net-cash positioning into a possible recession and potential for increased gross margins from falling freight rates. Barclays also increases its price target on the stock to 100 pence from 75 pence. Shares fall 2% to 73 pence. ([e-mail])

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Gilt Yields Stay Lower After BOE 50Bps Rate Rise

1322 GMT - Gilt yields stay lower after the Bank of England voted 6-3 to raise its key interest rate by 50 basis points to 3.50%, in line with market expectations. The BOE said that global supply chain problems appear to have eased but global inflationary pressures remain high. It now expects the U.K. economy to decline by 0.1% in 4Q, "0.2 percentage points stronger than expected in the November Report", the BOE says. The yield on the 10-year gilt is down by 9bps on the day at 3.224% while the yield on the 2-year gilt is down 11bps at 3.333%, both little changed since the BOE's announcement, according to Tradeweb. ([e-mail])

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FTSE 100 Stays in Red After Bank of England Rate Rise

1322 GMT - The FTSE 100 Index broadly maintains earlier losses, down 0.3% or 24 points at 7471 after the Bank of England raised U.K. interest rates by 0.5 percentage points to 3.5%, a 14-year high. Retailers and financial stocks fall while property, oil and mining shares rise. "A year ago, the BOE base rate stood at just 0.1%, keeping down the costs of mortgages and loans and helping to grease the wheels of the economy," Laith Khalaf, head of investment analysis at AJ Bell, writes. "Today the base rate is 3.5% and that's gradually going to become front and center of the consumer crunch, as the impact of higher interest rates gradually ripples out into the real economy." ([e-mail])

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Sterling Could Underperform After BOE Decision

1328 GMT - Sterling could underperform in the near-term after the Bank of England continued to give "muddled messages" to the market in Thursday's policy decision, Ebury says. The BOE raised interest rates by 50 basis points to 3.5% but two members preferred unchanged rates and one voted for a 75bp rise. Ebury expected just one vote for unchanged rates and one or two more officials to vote for a larger rise, Ebury strategist Matthew Ryan says in a note. The split vote provides "very little clarity" as to the BOE's rate plans for 2023, he says. "This is not likely to inspire much confidence in U.K. assets, and we suspect that the pound could underperform in the near-term as a consequence." ([e-mail])

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Split BOE MPC Is Becoming A Theme

1330 GMT - The Bank of England's Monetary Policy Committee was very split on Thursday and "that seems to be becoming a theme," says Jamie Niven, senior fund manager at Candriam. The BOE raised rates by 50 basis points, but two policymakers preferred to hold rates and one, Catherine Mann, preferred a 75bp rise. Comments suggest Mann "doesn't believe they will be able to keep hiking next year when the economy weakens more significantly," Niven says. Wage-growth evolution will be important at the February and March meetings, the fund manager says. Niven says the BOE might struggle to continue raising rates in the second quarter as the impact of earlier rate increases feeds through. He sees a risk of the market pricing a lower terminal rate. ([e-mail])

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UK Property Stocks Gain After BOE Rate Rise

1336 GMT - U.K. house-builders and property stocks gain after the Bank of England's interest-rate decision fueled hopes that inflation could peak shortly, easing fears of more severe interest-rate rises. Berkeley Group, Taylor Wimpey, Barratt Developments and other house-builders advance, though Persimmon and Rightmove still fall. The 0.5 percentage-point rate increase matched expectations and was smaller than November's 75 basis-point increase, the EY Item Club says. "The meeting minutes left the impression rates are likely to rise further in the new year," EY Item Club chief economic advisor Martin Beck writes. "But while financial markets see rates peaking above 4.5%, the EY Item Club expects bank rate to top out at no higher than 4%. Inflation has likely passed its peak." ([e-mail])

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UK Banks Drop as BOE Rate Decision Sparks Margin Fears

1407 GMT - Banking stocks are among the FTSE 100 Index's biggest fallers after the Bank of England increased interest rates by 0.5 percentage points, in line with expectations and less than November's 0.75 basis-point rise. While the BOE's perceived softer approach boosted property stocks, banks such as Barclays, HSBC and NatWest are trading lower amid concerns about pressure on net interest margins, Interactive Investor says. "Banks tend to fare better in a more aggressive rate rising environment as the spread between the cost of borrowing money and the amount they earn by lending it in the form of mortgages and corporate loans boosts profit margins," Interactive's head of investment, Victoria Scholar, writes. ([e-mail])

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BOE Rate Hike Unlikely to Mean Higher Fixed Mortgage Rates, Rightmove Says

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12-15-22 1059ET