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Goldman Sachs: BOE commentary consistent with the GS forecast

BOE
  • “We view the commentary from [yesterday’s] meeting as consistent with our expectation of two further back-to-back hikes, taking Bank Rate to 1.0% in May.”
  • GS continues to expect further hikes in Mar22, May22, Nov22, May23, Nov23, May24 (to 2.00%). Active QT of GBP20bln/quarter to be announced in May22.
  • “Four MPC members stating a preference for a 50bp hike came as a significant surprise. The hawkish pivot on the MPC stands out historically, with the largest meeting-to-meeting change in the average vote since 1997.”
  • “While the BoE’s low inflation projection at the end of the forecast (1.6%), conditional on market rates, could be viewed as a dovish signal about the medium-term profile of hikes, we remain of the view that the neutral level for Bank Rate is significantly higher.”
  • See three reasons to still look for more hikes than the Bank is signalling:
    1. “Our view remains that the economic outlook further out will turn out more constructive than projected by the MPC.”
    2. “While we think most members of the MPC generally see the UK’s nominal R* in the 1-2% range, a number of influential members (such as Broadbent and Pill) prefer a step-by-step policy-setting approach whose terminal rate is data/projections-driven, rather than ex-ante based on model estimates.”
    3. “The latest pre-GFC tightening cycle—2006-2007—saw the BoE projecting close to 2% inflation conditional on market pricing, yet eventually delivering almost four additional 25bps hikes relative to market pricing while actual inflation surprised the initial BoE forecast by at most around +50bps.”
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