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Pantheon: MPC to give economy some breathing space with next hike in May

BOE
  • “Omicron won't just have short-term effects if the MPC hikes again and pushes firms over the edge.”
  • “Markit gave the MPC an embargoed copy of December’s PMI data, before the Committee made its decision on Wednesday. The composite PMI fell to a ten-month low of 53.2 in December, from 57.6 in November... This suggests the Committee has a high tolerance for bad Omicron-related news.”
  • “The Committee continues to think that “some modest tightening of monetary policy over the forecast period is likely to be necessary”… unlike in November, the MPC did not explicitly state that the next rate hike would come “in the coming months”.”
  • “When the MPC meets in early February, the economic fallout from Omicron will be hard to ignore. Some additional restrictions on economic activity likely will be introduced towards the end of December, such as bans on household mixing or a return to social distancing, which will bear down substantially on activity in the consumer services sector… The hawks will argue that Omicron will have only a short-term impact on economic activity and might even worsen the medium-term inflation outlook… But we think most Committee members will contest these arguments.”
  • “We think the Committee will give the economy some breathing space before raising Bank Rate again. We are bringing forward our forecast for when the MPC will raise Bank Rate to 0.50% by three months to May... We then expect the Committee to raise rates to 0.75% in November, with a further hike to the neutral level of 1.0% in May 2023.”
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