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View change: Barclays now look for 25bp hikes in June and August

BOE
  • “We note a material shift in the MPC’s narrative, now prominently featuring high and rising inflation, second-round effects amid a tight labour market and risks of expectation de-anchoring. With three members voting for a 50bp hike and most supporting further tightening, we think the MPC will hike again in June and August.” Barclays had previously assumed the May hike would be the last in the cycle.
  • “At June’s meeting, we do not think it will take a stretch of imagination to see at least two more MPC members join dissenters C.Mann, J.Haskel and M.Saunders to lift rates to 1.25%. This would be consistent with both the new narrative and forecasts and the “guidance””
  • “A hike in August is a weaker proposition. As rates continue to rise, the need to hike further diminishes and members are increasingly likely to dissent for a status quo. However, by August, data is unlikely to seriously challenge the Bank’s forecasts as well as its conviction that risks to prices stability are excessive. Furthermore, we can infer from comparing the Bank’s forecasts with and without market interest rates, that a further 50bp of tightening would be consistent with the Bank delivering its mandate”
  • QT guidance “remain broadly in line with our expectation of a limited active QE (£20-25bn per year) starting no sooner than in early 2023.”
  • “Should rates reach 1.5%, as we expect, the market discussion may well gradually shift from ‘how much higher’ to ‘how much lower’.”
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