70bp priced for next week after Mann

• Pricing for next week’s MPC meeting is steady this morning at 70bp (still higher than for the upcoming Fed and ECB meeting). It spiked briefly above 72bp after Catherine Mann’s speech yesterday in which she stated that “the gradual pace of increase in Bank Rate has not tempered expectations enough, allowing the embedding of the short-term inflation overshoot into the persistent drift in medium-term expectations… We cannot be complacent in the face of the short-term spikes and medium-term drift. Acting more forcefully now, to ensure that the drift does not become the norm, is designed to avoid depending on a deeper and longer contraction to return inflation to target.”
• The overall tone of her speech does suggest that she is leaning to voting for a 75bp hike next week - particularly as she will have known what the market was pricing when she made this speech and out of the MPC members she is among the most attuned to making her comments with market pricing in mind.
• Mann has been one of the hawks on the MPC for some time and with the exception of the March MPC meeting around the time of the start of the Ukraine war has voted for a 50bp hike at each of this year’s MPC meetings (as well as voting for an early end to QE last November). With only one 50bp hike in that period (at the last meeting in August) she has long thought the MPC was acting too slowly.
• But this also makes her comments hard to interpret for the wider MPC – she does not necessarily hold the majority view and therefore tomorrow’s testimony will be important (which will also include Tenreyro (one of the more dovish members) as well as Bailey and Pill (the latter two have always voted in line with the majority decision).
• Markets now price 192bp for year-end (down from yesterday’s close of 196bp and a spike of 199bp immediately after Mann’s speech). 273bp is priced for the year ahead (yesterday’s close was 277bp with a high of 282bp seen in the morning, with a smaller reaction to Mann’s speech than nearer-term pricing). All of these values remain higher than the equivalent for the ECB or Fed.

MNI_Mann_Highlights_20220905.pdf