Bank of England: Headlines likely to pass without any significant market reaction – Rabobank

Next week, the Federal Reserve and the Bank of England (BoE) will have their monetary policy meetings. Analysts at Rabobank don’t expect any changes from the BoE. They forecast CPI inflation to peak at 2.5% (y/y) in early 2022, before slowing down.

Key Quotes: 

“The UK’s inflation numbers are in for a bumpy ride. We expect CPI to rise above 2% y/y toward the end of 2021. In large part, the rise is a mirror image of last year’s decline.”

“The Bank of England announced a slight slowdown of its purchases in May, creating a glide path towards its year-end target of £875 billion. The central bank went to great lengths to clarify that “this is an operational decision that should not be interpreted as a change in the stance of monetary policy”, even as the economic and inflation outlook improved. The rise in inflation was explained away as a rather transitory affair.”

“The market’s expectations going into the June meeting are muted and it seems likely that the headlines will pass without any significant market reaction. The decision to hold the Bank rate at 0.10% looks like a done deal, and it is highly unlikely that we’ll see any further changes to the pace of gilt purchases.”

“In May, the MPC agreed to set this pace at £3.4 billion a week until the August meeting, and market conditions haven’t significantly improved or deteriorated since. But if markets remain calm over the course of June and July, we will see another slowdown in the pace of these purchases at the August meeting, as the MPC follows its glide path and tries to create a soft landing at the end of the year.”

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