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View Change: Barclays looks for 50bp in August and 25bp in September

BOE
  • Barclays has updated its baseline BOE view and now looks for a 50bp hike in August (previously 25bp) and continues to look for a 25bp hike in September.
  • See three reasons for a 50bp hike rather than 25bp in August:
    • "Energy prices are set to derail the inflation forecast yet again... we estimate that the Ofgem price cap will be raised by 75% during next winter"
    • "The Bank’s gradualist narrative is threatened by the return of volatility"
    • "Data have played into the hand of the hawks"
  • Barclays expects a 7-2 vote with Tenreyro and Cunliffe dissenting.
  • Barclays expects a £50-100bln balance sheet reduction programme to be discussed in August "to be able to hold a “confirmatory vote” at its September meeting, with actual sales starting sometime thereafter".
  • Barclays notes that the 50bp hike will be considered front-loading, will reiterate that QT is not an active tool and that forecasts will see higher inflation and slower growth.
  • "By November, the slowdown in activity will be sufficiently intense to dissuade the BoE from hiking further, at least for a while." This will leave the Bank Rate at 1.75% rather than 1.50%.
  • "We see upside risk to the status quo in H2 23: as the cost of living crisis passes and momentum rebuilds, we think the Bank could well re-start hiking. This is based on our assessment that the labour market is facing structural supply shortages."
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