BOE Preview - December 2020: Where’s the Bottom of the Bucket?

CORRECTS TYPO IN THE PDF.

• The Bank of England had been hoping that much of the uncertainty that had clouded the November Monetary Policy Meeting would have been resolved by the December meeting. Indeed, the UK has started rolling out the first Covid-19 vaccinations and there is more clarity on the timing of the wider rollout to the population. However, the outcome of Brexit trade negotiations remains unclear at present although it does appear as though some progress is starting to be made. Recent activity is also likely to have been hit harder than the Bank's latest forecasts as they were made before the announcement of the English November lockdown (albeit they were known by the time of the publication of the MPR), and more regions are now in the highest Tier 3 (including Greater London) which is likely to hit economic activity in Q4 even more.
• With this in mind. We would favour a 21-24 month minimum maturity for the short-dated bucket (or potentially 18 months for ease of communication). We discuss our rationale for this in the preview.
• Regarding negative rates, although there could be some discussion in the Minutes, we think that the February Monetary Policy Report is a much more logical way to release the results of the survey. We therefore think that the Minutes will likely be limited to members noting that the negative rates review is ongoing but that negative rates are part of the Bank's toolbox if needed.

MNI BoE Preview - Dec20 - final.pdf