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View Change: Credit Suisse: Bank Rate at 2.25% end-2022 and 3.00% end-2023

BOE
  • “We now expect the BoE to hike rates by a further 100bps in 2022 from 1.25% to 2.25% by year-end (as opposed to 1.50% before). We expect the BoE to hike by 25bps at each of its remaining four meetings, with the risks of a 50bp hike rising if inflation and labour market surprise to the upside.”
  • Reasons for the forecast change:
    1. The new guidance “indicates that the hiking cycle is likely to continue as inflation and labour data remains strong and raises the risks of a larger move. The minutes said that the scale, pace, and timing of further hikes will be data dependent.”
    2. “We expect inflation to continue to be high (at 8.5% in 2022, above the consensus of 8.0%) and labour markets to be resilient.”
    3. “we expect GDP to rebound in H2 2022, which should support continued hikes… We previously expected the BoE to pause in August due to its weak growth forecasts. But in June, the BoE judged the impact of the real income squeeze on demand as uncertain, rather than outright negative.”
    4. “Despite the change in our call, we think that the BoE is likely to be less aggressive than market pricing this year.”
  • “The slower pace of BoE hiking relative to fundamentals is likely to mean that inflation remains higher for longer… This implies that the BoE may have to ultimately carry on with its hiking cycle for longer. We expect three more hikes in 2023, such that rates reach 3% by the end of 2023.”
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