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UBS: Changed forecast following GDP data to look for more front-loaded hikes

BOE


  • Look for 25bp February hike.
  • “We have previously noted that the MPC could stay on the cautious side and choose to end reinvestments after the £25bn redemption of Gilts on 7 March. However, the markets appear to be fully pricing an immediate end to reinvestments implying a low risk of an adverse reaction. This, in our view, increases the likelihood that the MPC will on 3 February decide an essentially immediate end to reinvestments.”
  • “Given the likely spike in inflation to around 6% y/y in April and the tight labour market, which appears to have smoothly transitioned from the furlough scheme, we expect the Committee to follow with two more 25bps hikes in May and August, thus taking the Bank Rate to 1%, the "soft" threshold for outright asset sales and above the post-GFC high of 0.75%.”
  • “We think the MPC will prefer to pause upon reaching 1% and defer the discussion on an active balance sheet unwind. With our baseline foreseeing inflation slowing to less than 2% in Q2-23, we expect no further hikes in 2023.”
  • UBS’ previous forecasts saw hikes in May22, Nov22 and two hikes in 2023.
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