Earlier this summer, we made a case for why the Bank of England (BoE) wouldn’t hike in July, and would rather wait for September to pull the trigger, in The BoE Hikes In Sept. Ahead of the meeting on Thursday, market pricing now favours a move in November, with a marginal chance of a surprise hike this month.
However, the real juice now lies in the coming 12-18 months, where we’ve seen a material repricing in expectations. Indeed, when our July note was published, SFIZ7 was trading around the 96.00 handle. It’s now almost a full big figure lower at 95.13, implying over 100bps worth of hikes through to December 2027.
Even with caution needed when extrapolating the UK's energy sensitivity from the latest rally in oil prices, the extent to which such aggressive tightening of UK monetary policy next year is priced seems extreme and deserves to be faded.
