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View Change: BNP: 125bp more this year with 50bp in August

BOE
  • “The Bank of England’s message today contained a clear hawkish tilt, in our view… its newly forceful forward guidance opens up the possibility of more aggressive rate hikes”
  • “We now expect a more frontloaded path of tightening than we did before and a slightly more restrictive terminal rate. We see 125bp of further tightening this year, including 50bp in August, taking Bank Rate to 2.5% by year-end.”
  • “This brings forward two hikes that we had pencilled in 2023 as well as adding 25bp to our previously envisioned terminal rate (2.25%).”
  • “The Monetary Policy Committee had previously sought in May to temper expectations about the path for tightening ahead… This has been replaced with a much more forceful message: There is no mention of different camps of members within the MPC, suggesting there is a consensus behind the message…. This message is now not only that continued tightening is appropriate, but the MPC also opened up the possibility of a more frontloaded path with larger rate hikes…. The MPC “would if necessary act forcefully” should there be any “indications of more persistent inflationary pressures”.”
  • “We continue to expect the BoE to begin active gilt sales in 2023, which would act as another source of tightening”
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