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Deutsche: Bring forward other hikes a quarter

BOE
  • Had forecast a 15bp hike.
  • “The MPC's message today was clear. With labour markets tight and inflation running well above target – and likely to stay higher for longer – the Bank of England prioritised prudence over optionality.”
  • “We bring forward our calls by a quarter, with the next rate hike now expected to come in Feb-22 (25bps), taking the Policy Rate to 0.5%. This would trigger the start of passive quantitative tightening (QT). A back-to-back hike isn't a slam dunk, however. Should restrictions tighten a lot more, the MPC may wish to wait a little while longer before hiking again – especially if consumer confidence weakens materially in the coming weeks. Monitoring the government's reaction function to the unfolding winter wave could be crucial in determining the Bank's next steps.”
  • “Beyond Feb-22, we continue to see two further hikes: one in Nov-22, and another in May-23 (a quarter earlier than we previously expected), taking the Bank Rate to 1% by mid -2023.”
  • Deutsche Bank point to three important factors:
    • “Omicron – a threat to inflation normalisation.”
    • “Risk management considerations now guarding against any inflationary spiral”
    • “The lag in monetary policy transmission. Key to our call for a rate hike in December was the view that Omicron did little to change the medium-term picture, especially given the lag in monetary policy transmission (18-24 months) highlighted by Deputy Governor, Ben Broadbent. Today, the MPC made that abundantly clear.”
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