EUR/GBP: There are developing growth risks to further rate hikes, suggesting further topside – TDS

The BoE raised Bank Rate 50 bps to 5.00% at today's meeting. Economists at TD Securities analyze EUR/GBP after the announcement.

More hikes ahead

The MPC hiked 50 bps in a 7-2 vote against the universal consensus of a 25 bps hike. The text of the decision was largely unchanged and points to further hikes ahead. 

We now expect three more 25 bps hikes in Bank Rate, taking it to 5.75% in November. As policy tightening catches up to the real economy, a recession is likely to emerge this winter, with cuts coming in Bank Rate from February 2024.

Rates are reaching a point where they will have a negative impact on growth, which is feeding back into a weaker currency. 

The 50 bps hike plays well into our EUR/GBP topside view, where we could see a push towards the top-end of the recent range back near 0.89 in the months ahead.