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Will the BOE intervene or carry out an emergency hike? (1/3)

BOE
  • There is lots of talk in the market about an emergency intermeeting rate hike, FX intervention or a statement from the Bank of England.
  • We ask the simple question of why? What is it that the Bank can cure through any of these actions? And what is driving the move?
  • The government's "Growth Plan" (fiscal statement) included a larger cost estimate for the energy price support scheme than expected (but the details were in line with expectations - just the final cost looks surprisingly high). This is the main reason for the near-term increase in gilt supply, and if natgas prices spiral higher again or demand is much higher than expected, there is the potential for the plan to become more expensive. As we have argued gilt issuance is now partly a function of natgas prices and UK energy demand. That is not new. The reversal to NI cuts were known ahead of the MPC meeting, while the reversal to the planned increases in corporation tax had been expected from Liz Truss' leadership campaign. Most of the other tax cuts are tinkering around the edges with the exceptions of the income tax cuts.
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