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Barclays: Hike to 0.75% by May then "material risk" of 2023 cuts

BOE
  • “The MPC were very careful not to make any explicit views on the impact of the Omicron variant on the outlook and simply highlighted elevated uncertainty.”
  • “We believe today’s decision and minutes suggest that the MPC does not believe that Omicron and any possible further restrictions would pose a material risk to the policy-sensitive medium-term horizon.”
  • “While the MPC appears to see Omicron as a transitory complication, it overweights labour market and inflation reports, and believes medium-term inflationary pressures need to be countered sooner rather than later. With that in mind we think the bar for not tightening further in February is very high... Sitting out February to hike in March would have to be explained, in our view, and we fail to see what the justification could be.”
  • “We do not think the Bank has a strong case to lift rates above 0.75% in H2 22. By then, inflation would be on its way down, on our estimates, the first impact of monetary tightening should have become visible, while fiscal policy will gradually pivot towards a restrictive stance.”
  • Barclays now looks for further 25bp hikes in February and May “Thereafter: Bank rates remain at 0.75% for the foreseeable future, while bonds gradually mature out of the Bank’s portfolios.” Previously Barclays had looked for the first 15bp hike in February followed by 25bp hikes in March and May.
  • Barclays notes that there are “material risks of cuts in 2023 given the early start to the hiking cycle. This is line with the IMF’s recent Article IV report arguing that the UK may face higher macroeconomic volatility, leading to more frequent policy moves.”
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