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Goldman Sachs: Look for GBP20bln/month QT to be announced in 2022

BOE
  • “Given the recent strong labour-market and inflation data, the BoE’s renewed focus on inflation expectations, and today’s unexpected hike in Bank Rate, we have reassessed our view of the BoE’s reaction function. We now think 25bps hikes are likely in both February and May, conditional on the economic impact of the Omicron variant being moderate and roughly in line with our baseline projection. After this, we expect the MPC to pause for six months before increasing Bank Rate to 1.0% in November 2022. Compared to our previous forecast, we now expect one additional hike by the end of 2022.”
  • “If Omicron turns out to cause more severe infections with hospital capacity under threat, then we think the BoE would likely keep Bank Rate on hold in February.”
  • “Silvana Tenreyro dissented, preferring to wait until February for more clarity around Omicron, in the absence of which she judged a hike in December as appropriate. This is a hawkish tilt from Tenreyro’s earlier view that suggested a preference for a notably later liftoff.”
  • “We expect reinvestments to cease following the February meeting as Bank Rate reaches 0.5%... We expect the BoE to announce a fixed and gradual schedule of asset sales in 2022Q4, after hitting the stated 1.0% threshold. While highly uncertain, we think asset sales of around £20 billion per quarter are reasonable.”
  • “The BoE has stated that it intends to conduct a comprehensive assessment of the balance sheet unwind programme no later than two years after the process begins, which falls in 2024Q1 in our projections. We do not expect any hikes above 1.0% until after this assessment is concluded. Following this, we expect hikes in 2024Q2, 2024Q4 and 2025Q2, with Bank Rate reaching our estimate of the terminal rate of 1.75% in 2025.”
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