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Nomura now looks for quarterly hikes until Bank Rate reaches 1.75%

BOE
  • “The limited MPC comments since the Bank’s December meeting have not done anything to push back against this market pricing, raising our confidence that the Bank will deliver on a quarter-point hike.”
  • “We had previously thought that the Bank could skip the first redemption of almost £28bn in March and allow roll-off to start only from later in the year, when redemptions would be more gradual... We have changed this view… and now see the Bank allowing roll-off to begin from the March redemption. While almost £28bn of balance sheet reduction in March is not an especially “gradual” way to start QT, relative to the Bank’s holdings of £875bn it’s still only 3.2% of the outstanding stock.”
  • After the Fed and Nomura US’ new Fed view “adjust our BoE view to a 25bp hike every quarter (timed to coincide with the publication of Monetary Policy Reports), taking rates to 1.25% by year-end. Two further hikes in H1 2023 would leave rates at a terminal point of 1.75% by the middle of next year. Previously, we had been assuming 1% by end-2022 and a terminal rate of 1.50% in Q3 next year.”
  • “Given the greater discretion that the Bank will ultimately have over active versus passive QT we think there will be a more prolonged debate on the Committee which – alongside the Bank’s less-specific guidance – will delay a decision on active sales until the end of this year (perhaps the November meeting, when Bank Rate should have been raised to 1.25% on our new view). Moreover, we do not expect a decision to employ active sales to be enacted until into 2023.”
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