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NatWest Markets: Following Feb, August hike most likely, March prob. rising

BOE
  • “A further Bank Rate rise in February 2022 seems highly probable (+25bp to 0.50%). An isolated 15bp Bank Rate rise in December 2021 would otherwise appear to be a largely pointless gesture given the delayed pass-through.” Expect a 9-0 vote.
  • “We would put a much lower probability on a 50bp hike in February (<10%). Such a move would be unnecessarily rapid and inconsistent with pre-existing policy guidance. A follow-up 25bp hike in March would be more likely than a 50bp rise in February, but we would still put a relatively low probability on this (~25%).”
  • “We expect some hawkish shift, albeit evolution rather than revolution: we do not expect the February Monetary Policy Report forecasts to fully validate market pricing for Bank Rate to reach (exceed, even) 1¼% at end-2022.”
  • “Our expectation is that the MPC will proceed cautiously and will want to take a little time to assess the response of households to energy, tax and (to a lesser degree) mortgage rate hikes. Hence, we look for the subsequent Bank Rate rise (after February) to come in August (+25bp to 0.75%) – albeit with growing risks of an earlier move in May.”
  • NWM then look for 25bp hikes in Feb23 and May23 to leave Bank Rate at 1.25% by the end of 2023.
  • “There is a plausible alternative scenario whereby the MPC concludes that inflation expectations are becoming de-anchored and that Bank Rate rises are required more in line with market pricing – eg, back-to-back 25bp hikes in February and March.”
  • On active QT: “We do not expect rapid discretionary selling of gilts, perhaps ~£10-£30bn a year, though this remains distinctly hazy and will of course be dependent on wider economic, fiscal and inflationary conditions. The main problem is that APF redemptions pick up from 2024 and onwards so a reduction in the balance sheet can happen simply through a passive run-off and without active sales.”
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