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Will the BOE intervene or carry out an emergency hike? (3/3)

BOE
  • As discussed, most of those measures were either pre-announced or expected. So if the Bank of England was concerned enough to be considering an FX intervention to support GBP (for the first time since the ERM breakdown) of an intermeeting emergency hike, is there really sufficient news relative to when only three members of the MPC voted for a 75bp hike with most of the information we have now?
  • We think the main thing factor GBP weaker is higher gilt yields - and we have argued in our BOE Preview that with a huge expansion in upcoming gilt issuance that it would have been prudent for the BOE to wait until at least November to start active gilt sales.
  • The fall in the pound has spooked markets into pricing in more rate hikes (as the depreciation is inflationary). And this has spooked FX markets further, into more depreciation.
  • However, we don't think anything has fundamentally changed for the MPC to feel it has to act ahead of the November meeting. Probably a more likely outcome is this week's planned gilt syndication is postponed (if markets remain this volatile). And the Bank of England may come out with a statement (or Bailey will mention in comments) that is aimed at reassuring the markets.
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  • As discussed, most of those measures were either pre-announced or expected. So if the Bank of England was concerned enough to be considering an FX intervention to support GBP (for the first time since the ERM breakdown) of an intermeeting emergency hike, is there really sufficient news relative to when only three members of the MPC voted for a 75bp hike with most of the information we have now?
  • We think the main thing factor GBP weaker is higher gilt yields - and we have argued in our BOE Preview that with a huge expansion in upcoming gilt issuance that it would have been prudent for the BOE to wait until at least November to start active gilt sales.
  • The fall in the pound has spooked markets into pricing in more rate hikes (as the depreciation is inflationary). And this has spooked FX markets further, into more depreciation.
  • However, we don't think anything has fundamentally changed for the MPC to feel it has to act ahead of the November meeting. Probably a more likely outcome is this week's planned gilt syndication is postponed (if markets remain this volatile). And the Bank of England may come out with a statement (or Bailey will mention in comments) that is aimed at reassuring the markets.