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Expectations and market reaction

BOE
  • As we noted earlier, the MNI Markets team now expect a much more split decision at today's meeting. We are pretty much on the fence whether we see a hike or not. Even if we do see a hike, we would now expect more dovish dissenters than Dhingra alone.
  • We think that if the Bank does hike today, changes are more likely in the forward guidance than previously. And so a hike today would likely still have a dovish tilt to it.
  • Markets are pretty much fully pricing one further hike by February (the peak of the market curve). So a hike would probably see a bit of a move lower in SONIA futures and gilts and a small move higher in the pound as some probability of a future hike was priced in.
  • If there was no hike with unchanged guidance, we would expect to see markets adjust by moving terminal pricing to be around 10bp or so above current levels (i.e. to adjust the terminal rate lower by the 12bp or so priced in for today’s meeting). If there is no hike and a softening of guidance we would expect a larger move – with markets beginning to price some probability of a cut around the May 2024 meeting.
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