DAVY VIEW

Despite the Fed’s decision to hike rates by just 0.25%, both the Bank of England and European Central Bank (ECB) are likely to press on with 50bp hikes today. The ECB has effectively pre-committed to raise the deposit rate to 2.5%, a view reiterated by several governing council members in recent weeks. The Bank of England’s decision is less certain. Governor Andrew Bailey recently said that CPI inflation had ‘turned a corner’, highlighting lower gas prices. However, with pay growth accelerating to 6%, the threat of persistent wage-price pressures means a 50bp hike to 4% looks more likely than not.