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ING: Two or maybe three hikes in 2022

BOE
  • Look for 25bp hike in February with beginning of QT. Base case sees 8-1 vote.
  • “If December’s surprise rate hike decision taught us anything, it was, firstly, that the Bank… is clearly worried about elevated rates of headline inflation and the risk of a virtuous wage-price cycle…. Secondly, December’s decision – taken when Omicron was very much in its ascendency – signalled that the committee is no longer fazed by Covid-19.”
  • “Markets are still overestimating the likely amount of tightening required this year, but we expect minimal pushback from the Bank against these investor expectations”
  • “We expect two, or maybe three [hikes in 2022…. But even if the Bank quietly agrees, we doubt it will say so. By pricing a steep rate hike path markets are effectively providing the BoE with the inflation protection it is looking for… That said, watch out for hints in the Bank’s forecasts that it thinks market pricing has gone too far.”
  • On active QT, ING notes that “based on the impact of QE in the previous cycle, we estimate that £25bn of gilt sales in any given year would have a comparable tightening effect on financing conditions as 0.125% to 0.25% of rate hikes.”
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