BoE's Bailey Under Pressure: Will he Push Back on Aggressive Rate Expectations?
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GBP: Bailey may not offer any rate pushback
Bank of England Governor Andrew Bailey (in the same panel with Lagarde and Powell) and Chief Economist Huw Pill will speak in Sintra today, and, like in recent circumstances, they are facing the pressure of very aggressive market pricing for BoE tightening. The Sonia curve is pricing in 118bp of additional hikes ahead, with a peak rate now seen closer to 6.25% than 6.0%.
The question is, once again, whether BoE officials will offer any kind of pushback against those tightening expectations, perhaps to offer some respite to the troubled UK mortgage market. That hardly seems like a logical move in our view after the hawkish 50bp hike last week and before having seen evidence that price pressures are abating at all. Arguably, the bar for a hawkish surprise is also quite high, but markets have shown some clear lenience towards hawkish BoE repricing, and we could see the short-term GBP rates staying supported barring any dovish hints by Bailey or Pill.
EUR/GBP should, in such an environment, remain quite depressed, and we could see it struggle to sustain a rally beyond the 0.8620/30 area.
