Danske Research discusses its new BoE call after today's 50bps hike at the August policy meeting.
One of the key takeaways from the Monetary Policy Report is that the BoE now projects a recession by Q4 2022 based on market pricing, which feeds well into the narrative playing out in markets where rising recession fears are dominating. This deviates from other central banks, who still communicate that a soft landing is possible. Overall, in our view, it seems fair to conclude that although forward guidance was significantly limited, it is to the dovish side given the economic growth projection," Danske notes.
We change our Bank of England call now expecting another 50bp rate hike in September and another 25bp in November, recognising that the Bank of England is probably not ready to fully stop hiking just yet despite rising recession risks. Further tightening is needed in order to cool extraordinarily high inflation pressure. We expect no rate hikes beyond the November meeting (although another 25bp rate hike in December seems like a close call at this point) and believe markets will start to focus even more on possible rate cuts in 2023 when the UK actually falls into recession," Danske adds.