Barclays Research continue to expect 50bps hike from the BoE at tomorrow's meeting.
Main Points:
Rate Hike Expectation: Barclays reiterates its expectation for a 50 basis points (bps) rate hike by the Bank of England (BoE) in the upcoming meeting scheduled for 3 August. If their prediction holds true, this would take the Bank Rate to 5.5%.
Rationale for the 50bps Hike: Barclays believes the BoE's decision to hike by 50bps in June indicates a strategic shift in the bank’s reaction function. They attribute this shift to:
- Signs of sustained second-round effects on inflation.
- The BoE's opportunity to fortify its credibility in managing inflation.
- Risk management considerations.
Voting Split Projection: The bank forecasts an 8-1 split in favor of the 50bps rate hike versus maintaining the current rate. They expect Dhingra, an external member of the Monetary Policy Committee, to remain a dissenting voice, advocating for unchanged rates.
Forward Guidance: Barclays anticipates that the BoE will not alter its forward guidance. The current guidance already communicates a conditional stance on the possibility of further rate hikes.
Summary:
Barclays maintains its stance that the Bank of England is poised for another 50bps rate hike in its forthcoming meeting on 3 August, taking the Bank Rate to a projected 5.5%. This expectation is grounded in recent shifts in the BoE's policy response, growing concerns about inflationary pressures, and the opportunity for the central bank to bolster its inflation-combatting reputation. The anticipated voting pattern reflects a strong consensus for the hike, with only one expected dissent. The forward guidance from the BoE, as per Barclays, will likely remain consistent with its current stance.
Market pricing is currently at 66% for 25 bps and 33% for 50 bps.
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