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JP Morgan: MPC to push back against 1.25% 2022 Bank Rate

BOE
  • “We expect the BoE to hike 25bps next week and signal that it has more to do, bringing another hike in 2Q into play. But we think the Bank will not endorse market pricing for rates to reach 1.25% or so by the end of this year”
  • “Our best guess is that the vote will be 7-2 in favor of a rate hike, with Tenreyro and Haskel dissenting.” March gilt will not be reinvested.
  • “Forecast assumes a brief pause in tightening in 2Q for three reasons: 1) The beginning of balance sheet run off 2) A huge near-50% hike in energy prices in April which will hit household incomes and 3) a rise in income tax”
  • “While it is too early to conclude that median inflation expectations have truly been dislodged, the risk is rising and this is something the BoE will be concerned about even if growth is disappointing. With a faster pace of tightening expected elsewhere in the central banking community, we hence now see a higher likelihood that the BoE will hike again in May - though our current call for the next hike is 3Q22. We will revisit that forecast after assessing the degree of urgency expressed by the BoE next week.”
  • “In November, the BoE sought to push back on market expectations for 100bps of tightening over the subsequent year. We would expect the BoE next week to now broadly endorse this magnitude of tightening”
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