Will BoE hike rates on Thursday?

The Bank of England will announce its decision on monetary policy this week. Market consensus points to a rate hike of 25bp to 0.50%. Analysts at Danske Bank see the BoE raising rates three times in 2022 (February, May and November) and consider that expectations of five hikes as being to the aggressive side.

Key Quotes:
“We expect the Bank of England to hike the Bank Rate to 0.50% at its upcoming meeting on Thursday. We expect two additional hikes this year (May and November) but risks are skewed towards more rate hikes. Markets are pricing in nearly five rate hikes this year.”

“We expect the BoE to announce “passive QT” (ceasing reinvestments of maturing bonds) in connection with the upcoming meeting. The BoE has previously stated QT would start when the Bank Rate reaches 0.50%. We expect “active QT” (selling bonds to markets) when the Bank Rate reaches 1%. Our base case right now is that happens in November, but since we believe risks are skewed towards more rate hikes, risk is also skewed towards an earlier start for “active QT”.”

“Our base case is three rate hikes in 2022 (February, May and November) but markets are pricing in around 125bp this year, i.e. five rate hikes. We also see risks skewed towards more rate hikes than the three we have penciled in right now, but we still see five as being to the aggressive side, also given the headwinds the UK economy may face over the course of the year, such as tighter fiscal policy.”