BOE: slowing the pace of interest rate hikes in view of the economic slowdown.


■  The Bank of England (BoE) to reduce interest rate hikes from 75 bps to 50 bps at its Monetary Policy Committee meeting on 15 May.
■  Whether concrete measures relating to post-2023 policy guidelines, such as the final destination of the policy rate, will be presented.

 The Bank of England (BoE) will hold its Monetary Policy Committee (MPC) meeting on 15 November; the MPC on 3 November extended the rate hike to 75 bps and raised the policy rate to 3.00%. The statement recognised that the BoE would "respond forcefully, if necessary, to the prospect of more persistent inflationary pressures". However, BoE Governor Bailey noted that "the rate hike needed to contain inflation is smaller than the market believes". While he advocated caution about the upside of inflation and the need for further rate hikes, he suggested that excessive tightening would lead to a recession, and suggested that the policy rate's end point (terminal rate) should be lowered.

 The unemployment rate for August-October, released on 13 August, is expected to rise for the second consecutive month to 3.7%, and the number of workers is expected to fall by 17,000 month-on-month for the third consecutive month, but growth in average wages (excluding bonuses) is expected to accelerate to 5.9% year-on-year growth. On the other hand, the rate of increase in the consumer price index (CPI) in November, which will be announced on 25 November, is expected to slow from the previous month (11.1% y/y), when it reached a 41-year high of 10.9% y/y, while the rate of increase in core CPI, excluding food, energy and other highly volatile items, is expected to remain unchanged at 6.5% y/y. According to the UK Statistics Authority, lower-income groups tend to be more affected by inflation than wealthier groups because they spend a higher proportion of their income on energy and food. The BoE is likely to continue to raise interest rates modestly towards its 2.0% price target amid a growing economic slowdown.

 In the interest rate swap market, 93.4% of the market is factoring in a 50 bps reduction in interest rates at the MPC on 15 March and 85.6% is factoring in a 50 bps increase at the next MPC meeting in February 2023. The market then expects the rate hikes to be reduced to 25 bps in March and May of the same year, respectively, and the terminal rate to peak at 4.50% by mid-2023; the simultaneous release of the minutes and BoE Governor Bailey's press conference will also be closely watched to see whether any concrete measures on policy guidance beyond 2023 will be presented. The BoE is also expected to release the Summary of Proceedings and BoE Governor Bailey's press conference.