BoE in hiking mode

Highlights:

• After the Monetary Policy Committee raised Bank Rate to 0.5% in early February, we see the BoE to continue hiking its key rate to 1.5% this year. Inflation risks are still tilted somewhat to the upside. However; the BoE model does not only predict to get inflation back under control but also growth to slow substantially over the medium term.
• The bulk of the Gilt sell-off is over. Aggressive rate hikes pricing will limit any further yield increase at the short end of the curve, but Quantitative Tightening (QT) allows for a moderate yield increase at the long end.
• The British Pound credit market can withstand the flows of bonds coming off the BoE’s balance sheet, thanks to decent technicals. Long-dated bonds and climate laggards should be the segments most under pressure.

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