The Bank of England has continued its rate liftoff, announcing moments ago that it is hiking rates by 25bps to 0.5% as expected, and has officially begin the unwind of QE. However, in a major hawkish surprise, 4 policymakers - Haskel, Mann, Ramsden and Saunders - voting to hike as much as 0.5% to 0.75%, an increase that has not been seen since the bank gained independence in 1997. All policymakers agreed that further modest tightening would be needed in coming months. The increase marks the first back-to-back hike since 2004.
Stressing its inflation-fighting mandate, the BOE said that “the remit is clear the inflation target applies at all times, reflecting the primacy of price stability in the U.K. monetary policy framework.”
The BOE also signaled the start of a new era for the 895 billion pounds of bond holdings amassed over the past decade under quantitative easing, and unanimously voted to begin the process of shrinking the balance sheet by ceasing to reinvest maturing assets. The BOE will immediately stop reinvesting the proceeds of expired gilts, allowing more than 200 billion pounds to run off by 2025, and announced plans to offload the entire 20 billion pound stock of corporate bonds by the end of 2023:
The Committee voted unanimously for the Bank of England to begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets. The Committee also voted unanimously for the Bank of England to begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets and by a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases.
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