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JP Morgan: Rates 1.25% by Aug-22 with 2 hikes and modest gilt sales in 2023

BOE
  • “We assume the MPC will hike rates again in March, May and August, taking rates to 1.25% by year end. This is probably more aggressive than the Bank’s signaling today, but we assume the forces prompting its faster intended tightening pace will not dissipate soon”
  • “This rate profile would see the BoE consider the start of gilt sales from the summer onwards, although given the accelerated path of rate hikes we think sales will not happen as soon as rates reach 1%”
  • “We are more skeptical that a limited front loaded tightening will be sufficient to meet MPC objectives, and continue to expect another two hikes next year, taking rates to 1.75% (combined with some asset sales)”
  • “It is noteworthy that the [Haskel and Mann who voted for a 50bp hike] have been towards the more dovish end of the spectrum lately.”
  • The MPC “has decided to highlight that it cannot do anything in the near term to prevent the cost of living squeeze, and must instead risk delivering a further drag on growth by raising rates in order to demonstrate its inflation fighting credibility.”
  • “We expect the MPC will go on hold in 4Q as it sees more traction from tighter policy and a labor market impact. The MPC may also be ready to conduct gilt sales at this point, i.e. after having had time to consider doing so following rates reaching 1%... We continue to leave two hikes in our forecast for next year... This slowdown in the assumed pace of tightening next year reflects the higher level of the policy rate at that time, ongoing fiscal tightening and the assumption of some modest gilt sales.”
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