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Deutsche Bank: More near-term hikes, slowdown in pace after August

BOE
  • “We no longer see one more hike this year. Instead, we see the MPC following up [yesterday’s] decision with back-to-back hikes in March and May (25bps each). We then see this followed by two more hikes – one in August (25bps) and another in Feb (25bps). This would take the terminal rate up to 1.5% – slightly above our estimate of the neutral rate.”
  • Three reasons for change of forecast:
    1. “The hawkish surprise of a potential 50bps rate hike in the February meeting suggests that the MPC is both worried about inflation persistence and its effect on expectations... Indeed, this was the main rationale for why four members of the MPC voted for a bigger hike”
    2. “The Agents survey points to more price pressures in the near-term”
    3. “The Bank's near-term forward guidance has evolved. The MPC now sees "some further modest tightening in monetary policy is likely to be appropriate in the coming months"”
  • Regarding the slowdown in hikes after August:
    1. “See some downside risks to near-term inflation, relative to the Bank's upgraded forecasts.”
    2. “We continue to think that MPC members will tilt their 'lambda' (i.e. trade-off between inflation and growth) more towards the slowdown in growth as inflation slows over the course of the year.”
  • “We will publish shortly on how [active QT] could work, including the logistics, impact, and timing of any potential active QT.”
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