BoE Policy Rate Hike Expectations Face Reality Check

Market expectations for the Bank of England (BoE) policy rate remain hawkish despite concerns that current forecasts are overstated. According to ING's Michiel Tukker and Padhraic Garvey, no changes to the BoE policy rate are anticipated at the upcoming meeting.

The duo emphasizes that UK rates are highly sensitive to oil price movements, with sterling rates rising by 20 basis points for every $10 increase in oil prices. They argue that the current expectation of around 70 basis points of hikes over 12 months is 'stretched' given the already restrictive 3.75% policy rate.

Tukker and Garvey believe that even if one disagrees with market pricing, taking a bullish position will lead to significant losses due to oil volatility. They predict that the BoE will not hike at all and that despite potential votes for hikes, the doves will maintain a majority.