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Nomura continues to look for December hike

BOE
  • Reasons for a hike next week: "The combination of high and rising inflation, a tight labour market, and the need to “prepare the ground” for a tightening cycle to begin in earnest next year."
  • On the latter: "One argument for raising rates by a modest 15bp at the December meeting is that, at very little cost, it puts policy rates back on the “quarter point ratchet” ahead of “tightening proper” in 2022. After all, does the Bank really want to be in a position in two-to-three months’ time, whereby inflation has risen further, the virus is once again in retreat, yet it has failed to get policy rates off the ground?"
  • "We think the Bank should – and will – pull the trigger next week. A non-market view it may be, but conviction levels associated with next week’s decision –whatever one thinks the Bank will do – are likely to be low."
  • "Based on the assumption that the Bank hikes 15bp next week – we expect the Bank to raise rates again in February, May and H2 in 2022 (each 25bp). We then see further hikes to a terminal point of 1.50% in 2023."
  • Nomura sees 4 risks to its view:
    • Omicron/Plan B Covid restrictions
    • Not much point in taking action if the shock to inflation is gone by the time monpol can affect it
    • "Higher inflation could ultimately detract from demand, leading to downward – not upward – pressure on medium-term inflation forecasts"
    • "second-round effects have not been excessive thus far – with some key measures of pay growth relatively benign"
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