August 04, 2022
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BoE: Market Tail Wags Policy Dog

  • The BoE hiked by 50bps to 1.75%, in line with market and consensus expectations, but contrary to our view that a lack of increased second round effects would mean 25bps.
  • A reassessment of existing pressures proved more important than the downside news and state-dependent guidance that was needlessly issued and broken.
  • We now ignore retained guidance about the reaction function and focus on the BoE’s 2yr inflation forecast. GBP pressure will probably underly another 50bp if it occurs.

By Philip Rush

July 21, 2022
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ECB: Hiking With No Clothes

  • The ECB followed through on recent source reports and frontloaded its 50bps rate hike into July. More steps are ahead but are likely to be data-dependent 25bps ones.
  • Abrupt tightening requires a credible policy to manage fragmentation pressures, which a new transmission protection instrument (TPI) is intended to provide.
  • Purchases under TPI are a conditional insurance policy that requires future agreement to trigger, so it is unlikely to prevent excess recessionary pressures from building.

By Philip Rush

July 06, 2022
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BoE Pressure Eases with Expectations

  • The BoE warned it would hike more aggressively if inflation pressures became more persistent. Market pricing levels and responsiveness have fallen, relaxing that pressure.
  • Consumers are baulking at price rises to the extent that businesses are starting to curb their expectations for future price rises.
  • Wage settlements appear to have at least topped out and, with rising unemployment, are consistent with the cycle burning out soon. The BoE should not raise its hiking pace.

By Philip Rush