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Policy decision expected at 12:00GMT / 7:00ET

BOE
  • Along with all 26 analysts in our survey, the MNI Markets team expects a 25bp hike this week. We note that markets have pulled back a little on near-term pricing and rather than pricing in around a 15% probability that the MPC goes further and delivers 50bp, a 25bp hike is now roughly 96% priced.
  • The 4%22 gilt, of which the BOE bought GBP27.9bln (GBP25.1bln nominal) is almost certainly to not be reinvested. We note that the language used by the Bank in its August 2021 sequencing guidance stated that: “The MPC intends to begin to reduce the stock of purchased assets, by ceasing to reinvest maturing assets, when Bank Rate has risen to 0.5% and if appropriate given the economic circumstances.” The word “intends” is a strong word for a central banker and conveys a sense of confidence. While it would be hard to argue that it is not appropriate due to “economic circumstances” when the Bank has been confident enough about the circumstances to vote for back-to-back hikes.
  • In terms of medium-term guidance, the key thing will be the inflation forecasts (particularly the 3-year forecast at market rates). If that forecast is below 2% it would be an implicit signal from the BOE that market pricing is too high.
  • We would prefer to stay away from trading near-term meetings and instead think there is more scope to seeing Red SONIA futures move higher. In terms of sterling, we expect some weakness, although note that with the ECB meeting happening shortly after, it will be hard to disentangle the moves.
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