25 bp or 50 bp – how much will the Bank of England (BoE) hike its key rate by? Economists at Commerzbank analyze GBP outlook ahead of the decision.

How hawkish is the BoE?

Market expectations and analysts’ consensus tend towards the ‘small’ rate step of 25 bps. A minority considers a further 50 bps rate hike to still be justified and might therefore react with disappointment to a smaller rate step, trading Sterling weaker.

What is decisive for the medium-term GBP outlook is the question of what will happen after today’s decision. This is likely to be influenced by the new projections. Due to the expected downside risks for the growth and inflation outlook these are likely to support our expectation of a cautious BoE monetary policy, pointing towards lower rate expectations and a weaker Sterling. 

If the BoE was to surprise with a 50 bps rate hike today it would be considerably more hawkish than we expect and we would probably have to re-examine our view of the BoE and the future development of GBP exchange rates.