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SocGen: March hike too early; GBP60bln gilt sales when rates 1%

BOE
  • “The market is actively debating the possibility of the next hike coming at the next meeting in March. We think that is too early so we still look for the next increase to come in May. Whilst the MPC is aware of the forthcoming hit to real income, it will be monitoring its impact carefully. To make another hike just before that looks a bit dangerous to us.”
  • “We do, however, think the worsening inflation outlook will cause the committee to keep tightening throughout the year in 25bp increments at each quarterly MPR meeting to reach a peak of 1.25% by the November meeting. Previously, we predicted a peak of 1% in August.”
  • “When Bank Rate hits 1% we expect the MPC to announce active gilt sales of £60bn, dovetailed with the maturity run-off, to be reached by June 2023. That will take the overall reduction in the QE stock to £150bn by the end of 2023. With further run-off of £137bn over 2024 and 2025, that will reduce the QE stock to a little over £600bn from the current £895bn”
  • “The MPC’s emphasis in the justification for its policy tightening, even in the face of the severe squeeze ahead on real disposable income the inflation surge is causing, is that by returning inflation to target it will actually help households by ending that squeeze. The corollary is that, if there is a further upward inflation surprise, which is easily possible, then the committee would be prepared to make policy even tighter than currently planned.”
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