Bank of England hike: It was the labour market that worried them

Reading through the BoE statement from yesterday the following points jump out

• The BoE is largely confident that Omicron can be managed, but December 2021 and Q1 2022 is expected to dip
• Inflation is now expected to peak at 6% in April 2022. Previously it was 5%.
• The BoE remind us they are concerned about price stability and that the 2% inflation target still remains
• The labour market is what has them concerned. See this paragraph at the end of the statement:

At its November meeting, the Committee judged that, provided the incoming data, particularly on the labour market, were broadly in line with the central projections in the November Monetary Policy Report, it would be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target. Recent economic developments suggest that these conditions have been met. The labour market is tight and has continued to tighten, and there are some signs of greater persistence in domestic cost and price pressures. Although the Omicron variant is likely to weigh on near-term activity, its impact on medium-term inflationary pressures is unclear at this stage.

The Committee judges that an increase in Bank Rate of 0.15 percentage points is warranted at this meeting.

The takeaway

All about inflation from the labour market. So, going forward watch for the GBP sensitivity to the labour market. If wages rise, then costs rise, then inflation is systemic regardless of how you got there. The BoE won't take that risk.