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Market pricing and economists' forecasts are very split

BOE
  • There is a real disconnect between market pricing and what economists are saying at present regarding the BOE.
  • For example, if you look at market pricing for the UK at, there are 6.6 more hikes priced by the end of 2022 (in addition to the 25bp we have already seen in February). So that would leave Bank Rate between 2.00-2.25%. The Bloomberg economist consensus is 1.25% with no bank in the survey looking for higher than 1.75% this year.
  • Markets price in around 30bp for today's meeting (around a 20% probability of a 50bp hike).
  • Given what is priced in further out for markets is dislocated from what the market is pricing, I think the vote split is also showing some dislocation.
  • The Bloomberg consensus looks for a 9-0 vote, but the MNI Markets team expects that would be interpretted dovishly by market participants. So that’s why we think it’s closer to a 7-2 vote that would be closer to neutral for a market reaction. Of course this has the caveat of what happens to the forward guidance and whether the "coming months" time contingency remains. But given the split between economists and markets, it’s much more uncertain this time than normal exactly what the market is pricing for today's meeting.
  • For more on our expectations on market reaction see the MNI BOE Preview here.
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