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What will drive the market reaction?

BOE
  • The biggest thing in our view that could impact the market reaction today would be the removal of the "forceful" language surrounding future hikes. If this was taken out of the statement the MNI Markets team thinks there could be a dovish market reaction, potentially even if the 75bp hike (that isn't fully priced in is) is delivered.
  • 50bp hike probably will have a larger dovish market reaction than a 75bp hike. Only 3/23 analysts look for a 75bp hike but markets are pricing around 65bp at writing - around a 60% probability of a 75bp hike. However, it is not just about now - there is 205bp priced in for the remainder of 2022, so if we didn't get a 75bp hike today, we would need 2x75bp hikes in the remaining meetings - and if the BOE isn't willing to do 75bp now, why would it be more likely to later? Market pricing is also looking for a cumulative 322p of hikes by June 2023 - so almost fully pricing Bank Rate at 5.00%.
  • Active gilt sales: We think if these go ahead at the GBP10bln/quarter planned pace there will probably be only a very minor reaction in gilts (that would be dominated by the move on Bank Rate). However, if the decision is delayed until November, there is potential for a smaller overall programme, or even further delays to the BOE selling gilts - this would therefore be positive for gilts.
  • Vote split on Bank Rate: Much less important this time than in other meetings, in our view, other than if we see a 50bp hike with 3-4 members voting for 75bp. If we were to one more member than just Tenreyro voting for 25bp or less this probably wouldn't move markets too much. 3 members voting for 25bp or less would be notable, however.
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