Britain’s new Prime Minister and Chancellor setting fire to sterling budget risks BoE rate hike of 100bps in November

The hyperbole in the title is mine, while the MUFG sequel is a little more restrained :-D.

We now expect the BoE to rise 75 basis points on November 3; a move of 100 basis points cannot be ruled out.

  • The OIS market is priced at a discount rate of 4.00% by the end of the year. We don’t think we’ve succeeded, but the direction short-term rates are headed is clear. The main risk here is related to the timing of this huge fiscal stimulus in addition to the lack of accountability.

We remain bearish on the GBP as it approaches levels closer to the all-time low of 1.0520 in 1985.

  • There is certainly no “good mood” in this fiscal gift and seems to have increased the level of uncertainties which were already very high.

Meanwhile, the BoE’s decision to raise rates by “just” 50 basis points (last week) instead of 75 basis points like the ECB and the Fed could add to fears that the BoE could be at risk. lags behind in the fight against inflation.

  • We expect these political concerns about the appropriateness of fiscal and monetary policy to remain in place in the near term and weigh heavily on the pound. In addition, the resumption of sell-offs in global equity markets and tighter global financial conditions are making it more difficult to finance the UK’s high current account deficit, adding further downward pressure on the pound.

Update from BP, there was action in the very first hours with in-depth auction monitoring from Friday:

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