MNI Gilt Week Ahead - Mar 22 2021: UK-EU relations in focus

• Last week's MPC meeting did little to change opinions of the future course of monetary policy. There were no major analyst view changes that we saw after the meeting with views split as to whether the MPC will announce a tapering of asset purchases in May or August. The MNI Markets team continues to expect an announcement in May that purchases will be slowed when the final economic restrictions are removed in England (so a slowing of purchases effective from June). For our full BOE review including 16 sell-side summaries, click here.
• This week we will hear from BOE Governor Bailey at least twice as well as Cunliffe but given the settings it is unclear whether they will be able to give any new insights on monetary policy. Speeches on Friday by Saunders "Supply and demand during the pandemic" and Tenreyro's speech at the San Francisco Fed's Macro and Monetary Policy Conference will be closely watched. The Bank did not seem concerned about the impact of rising gilt yields or money market pricing and so it will be interesting to see whether any individual members of the MPC break ranks and state that moves have been unwarranted. Tenreyro in particular has been a strong proponent of the benefits of negative rates and hence is considered probably the most dovish member of the MPC, and so it will be interesting to see if she comments on the fixed income sell-off in her comments this week.
• Elsewhere there are a number of top tier datapoints this week, although all will be impacted by the lockdown. Labour market data is due for release Tuesday, inflation data and flash PMI data on Wednesday and retail sales data on Friday.
• Political developments will also be closely watched this week, particularly regarding vaccine supply (which has now seen more than 50% of adults receive a first dose). Supply is already expected to slow in April as 5 million doses of the AZ/Oxford vaccine that were due to be imported from India have been delayed (after reported export bans) while a batch of 1.7 million doses which has already been delivered is undergoing additional checks and it is uncertain whether this batch will be able to be used. This has led to guidance for the NHS not to book in any vaccine appointments for anyone outside of the top 9 priority groups during April, and instead to focus on second doses and anyone in the priority groups who has yet to receive a first dose (note that the priority groups include all over 50s, all clinically vulnerable, all carers and NHS workers).
• Weekend reports suggest that the EU will block any exports to the UK of the AZ/Oxford vaccine or its ingredients to the UK, but that Prime Minister Boris Johnson is attempting to drum up enough support from Eurozone leaders to veto this before a final decision is reached on Thursday. A ban on exports to the UK of the AZ/Oxford would have huge political ramifications, particularly with the EU and UK already at odds regarding the implementation of the post-Brexit trade deal in Northern Ireland. However, most of the vaccines imported into the UK from the EU have been in the form of the Pfizer vaccine. A block on exports of the Pfizer vaccine from the EU (which is manufactured in Belgium and reports suggest the Belgian government would strongly oppose) would have much more impact on the pace of the UK's vaccination scheme while also calling into question whether enough second doses could be secured within the 12 week recommended timeframe for a second dose to be administered.

GiltWeekAhead22032021.pdf