• There’s plenty of arguments to think today’s move has been the last hike this cycle (our central case). They include: financial sector uncertainty, slowing wage growth, weak UK GDP relative to other countries, the Bank’s forecasts for sharp falls in inflation (and generally lower inflation expectations in the surveys), and the Bank having already raised rates more and for longer than most central banks (lags mean that the impact of this tightening on the economy will continue to be felt).
• But there are also upside risks to our 4.25% peak view. They include: no dovish tilt from the MPC today, 4.25% being a relatively low peak, a tight labour market, sticky core inflation, looser fiscal policy, and a central bank sounding generally more optimistic about the economic outlook and comfortable about the financial sector.
• On balance, we retain our existing BoE view. After reaching 4.25% today we see the Bank keeping rates on hold for around a year before cutting by 75bp around the middle of 2024 (leading rates back down to 3.50% at that point). At the time of writing the market is pricing in just over another 25bp hike (+33bp at the peak by August).

Norges Bank: staying the course on hikes

• Norges Bank raised its policy rate by 25bp to 3.00% at today’s meeting, in line with Nomura’s and the majority of other forecasters’ expectations.
• Its policy rate projections were revised up significantly to a terminal rate of 3.60% from 3.11% in its last Monetary Policy Review. Despite financial uncertainty Norges Bank said it expects to hike rates by 25bp in May. It also revised up its underlying inflation forecasts.
• Overall, this announcement supports our view that the Norges Bank will hike twice more by 25bp each time, bringing the policy rate to a terminal level of 3.50% by June.