BoE: transmitting periodic hawkish surprises
- The BoE has delivered its first rate hike in a decade. Future moves will respond to its trade-off, with slack and inflation determining timing. I expect May-18 next.- Rate changes may be absorbed in spreads, which would pressure the MPC to hike faster and further than my already hawkish forecast (every six months back to 2%).
- With a positive output gap potentially building, rates need to return to neutral, but markets place excessive focus on growth over gaps and do not price this.
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