The Bank of England (BoE) kept its monetary policy unchanged at the November meeting. Analysts at TD Securities point out the message was that the Monetary Policy Committee (MPC) is willing to be patient.
“The messaging today was cautious, and with a 7-2 vote to hold Bank Rate, it's clear that the committee isn't chomping at the bit to hike rates. We continue to expect a gradual pace of rate hikes from here, and as we recently explored, there are immense challenges facing the UK that the MPC will have to navigate carefully.”
“The BoE outcome was undoubtedly damaging for GBP, generating a positioning-induced squeeze lower. While GBP still holds one of the largest discounts of all currencies on our dashboard, things could get worse before value buyers emerge. We target a 1.3450 pivot in the weeks ahead and could see EURGBP eye a fresh retest of 0.86.”
“We expect the MPC to hike Bank Rate in February 2021, taking Bank Rate to 0.25%, though a December hike can't be ruled out. While the MPC expects inflation to peak around 5% y/y in April, we expect the pace of hikes in 2022 to be measured: uncertainty around COVID, the persistence of supply shocks and re-opening mis-match, and Brexit, remain elevated.”
“We look for a subsequent 25bps hikes in August and November, followed by two more hikes in 2023. This means the MPC will need to make a decision on reinvestments after its August 2022 meeting, and a decision on active selling of Gilts following its February 2023 meeting.”
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