NatWest Markets: New language “dampens prospects” of a 50bp August hike

NatWest Markets maintain their existing BOE call and have the counter-consensus call that the change in the statement language actually reduces the probability of a 50bp August hike.

• “The BoE’s updated policy guidance feels more nuanced: less explicit or committal in terms of the near-term outlook… but a pledge to ‘act forcefully’ if inflation pressures are more persistent. That would appear to dampen the prospects of 50bp Bank Rate rise in the near-term, certainly August and probably in September, while opening up the possibility of faster/larger rises further down the line.”
• “Whilst the MPC’s language in June could be deemed ‘hawkish’ overall (relative to the guidance in May), we are inclined to view the ‘act forcefully’ reference as an attempt to provide reassurance around a less hawkish central case.”
• “If +50bp Bank Rate increments are materially more likely at the upcoming meetings in August and September, why not convey just that more explicitly?”
• “Our Bank Rate forecasts are unaltered: 25bp rises in August 2022 (1.5%), February 2023 (1.75%) and May 2023 (2.0%), with the risks still skewed towards those 2023 rate rises being brought forward (to September 2022 and November 2022, say).”
• Continue to look for “£50bn of active sales per year, from 2023 onwards.”