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View Change: GS looks for 50bp in Aug and Sep and 2.75% by year-end

BOE
BulletMarketsFixed IncomeForeign Exchange
  • The “shift in communication came as a bit of a surprise. On the vote split, we had only expected two MPC members to vote for a 50bps hike, and had thought one member would prefer to keep Bank Rate on hold.”
  • “We view the reference to scale/pace and the use of the term “forcefully” in the June MPC Minutes as suggesting that 50bps hikes are now under consideration for all committee members. Given three members voted for a 50bps increase in Bank Rate at the June meeting, it now seems a low hurdle for the majority of MPC members to agree to a 50bps hike at the next meeting.”
  • “We now expect the MPC to vote for 50bps hikes in August and September. This would quickly take Bank Rate into contractionary territory, given our estimate that the neutral rate is 1.75%. We then expect 25bps hikes in November and December, taking Bank Rate to 2.75%. This boosts our terminal rate forecast from 2.5% to 2.75%.”
  • GS had previously looked for 25bp hikes at each meeting through February 2023.
  • “While the timing of asset sales remains uncertain, we continue to expect them to begin at the November MPC meeting.”
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  • The “shift in communication came as a bit of a surprise. On the vote split, we had only expected two MPC members to vote for a 50bps hike, and had thought one member would prefer to keep Bank Rate on hold.”
  • “We view the reference to scale/pace and the use of the term “forcefully” in the June MPC Minutes as suggesting that 50bps hikes are now under consideration for all committee members. Given three members voted for a 50bps increase in Bank Rate at the June meeting, it now seems a low hurdle for the majority of MPC members to agree to a 50bps hike at the next meeting.”
  • “We now expect the MPC to vote for 50bps hikes in August and September. This would quickly take Bank Rate into contractionary territory, given our estimate that the neutral rate is 1.75%. We then expect 25bps hikes in November and December, taking Bank Rate to 2.75%. This boosts our terminal rate forecast from 2.5% to 2.75%.”
  • GS had previously looked for 25bp hikes at each meeting through February 2023.
  • “While the timing of asset sales remains uncertain, we continue to expect them to begin at the November MPC meeting.”