The Committee was split, but won by a majority of 6-3, to maintain the BoE Quantitative Easing (QE) programme of asset purchases, which will result in £895bn of assets bought by the end of the year.
UK GDP increased in Q3 2021, although at a slower pace than predicted due to supply chain disruption, however UK GDP is on track to return to pre-Covid levels in Q1 2022.
12-month inflation in September was 3.1 per cent, which had dropped slightly from August’s 3.2 per cent, but it continues to be a concern. It is expected to reach just under four per cent in October and 4.5 per cent in November due to rising energy prices.
In the medium term it is expected inflation will decrease in H2 2022 with the implied path for bank rate increase and once supply chain disruptions ease and energy prices start to fall.
The Committee has noted that monetary policy tightening will be necessary in the medium term to meet the two per cent inflation target. The BoE has updated the central projections for activity and inflation in the November Monetary Policy Report which provide the market with an implied path for the Bank rate that sees it rise to around one per cent by the end of 2022.
The latest Office for National Statistics (ONS) unemployment figures continue to see a stable outlook with another slight decrease down to 4.5 per cent in the three months to August, however we remain to see whether this continues now that the government Coronavirus Job Retention Scheme has ended. The number of people furloughed has continued to decline, however latest figures to the end of August show that there were still approximately 1.3 million employees relying on the scheme, a decrease of just under 300,000 from July.
| Forecast in rates | ||||||
| Effective Rate | One month’s time | Three month’s time | Six month’s time | 12 month’s time | Two years’ time | Three years’ time |
| Bank of England Base Rate* | 0.10 | 0.33 | 0.59 | 0.85 | 0.96 | 0.93 |
| Two-year fixed rate** | 0.91 | 0.99 | 1.05 | 1.18 | 1.14 | 1.04 |
| Three-year fixed rate** | 1.01 | 1.06 | 1.09 | 1.14 | 1.10 | 1.03 |
| Five-year fixed rate** | 1.02 | 1.05 | 1.06 | 1.09 | 1.06 | 1.03 |
| 10-year fixed rate** | 1.04 | 1.05 | 1.06 | 1.08 | 1.08 | 1.07 |
* Using OIS Curve [rounded to five basis points (bps)]
**Based on the swap curve
Markets expect the Bank of England base rate to increase in early 2022 to around 30bps and then continue to increase over the next year in line with the implied path.
Market participants also expect the two and three-year swap rates to increase steadily over the next year however it is anticipated that they will drop back down slightly in two and three years’ time. The five and ten-year swap rates have been slowly increasing, however the rates are set to remain quite flat over the next three years.
UK securitisation market
The UK residential mortgage-backed securities (RMBS) primary markets quietened down in October, but activity has increased for November. With a transaction of near prime, owner occupied second lien UK residential mortgages recently priced and a UK buy-to-let (BTL) transaction currently in the market. Kensington is also in the market with its third transaction of the year, Finsbury Square 2021-2.
So far in 2021, just under £13.5bn of UK RMBS paper has been placed into the market compared to £13bn last year – and £20.7bn in 2019. Levels remain lower than pre-Covid due to the continued low amount of prime issuance into the market.
