Market Participants Survey results - August 2022

Expectations for monetary policy from experts in UK rates markets.
Published on 05 August 2022

Overview

This survey forms part of the Bank’s quantitative market intelligence gathering. It is formulated by Bank of England staff, and enhances policymakers’ understanding of market expectations. The questions involve topics that are widely discussed in the public domain, and never presume any particular policy action. Monetary Policy Committee (MPC) members are not involved in the survey’s design.

Survey respondents originate from a broad set of market participant firms, selected by the Bank based on a number of criteria, including: (i) relevant market activity in UK rates or money markets; (ii) expertise in UK rates markets and/or UK monetary policy; (iii) willingness to participate regularly in the survey and in the Bank’s market intelligence activity; and (iv) membership of one of the Bank’s external market committees.

Please contact MarketParticipantsSurvey@bankofengland.co.uk for queries or for further information.

Survey results

The survey was open from 20–22 July 2022 with responses being received from 45 market participants. For most questions, median responses across participants, along with the 25th and 75th percentiles, are reported.footnote [1] For questions that ask respondents to weight or rank different factors, the mean weighting or ranking is reported. For questions that ask respondents to select one option from a given set of possibilities, the respondent count against each option is reported.

Question 1: Expectations for Bank Rate

1a) What is your central expectation for Bank Rate after the following MPC meetings (%)? Bank Rate is currently at 1.25%.

25th percentile

50th percentile

75th percentile

Number of responses

4 August 2022 MPC

1.50

1.75

1.75

44

15 September 2022 MPC

1.75

2.00

2.25

44

3 November 2022 MPC

2.00

2.25

2.50

44

15 December 2022 MPC

2.19

2.25

2.75

44

2 February 2023 MPC

2.19

2.50

2.75

44

23 March 2023 MPC

2.25

2.50

2.75

44

11 May 2023 MPC

2.19

2.50

2.75

44

22 June 2023 MPC

2.00

2.50

2.81

44

One year ahead (August 2023 MPC)

2.00

2.50

2.81

44

Two years ahead (August 2024 MPC)

1.75

2.00

2.50

43

Three years ahead (August 2025 MPC)

1.50

2.00

2.50

42

1bi) What do you see as the peak level for Bank Rate in this cycle? (a)

25th percentile

50th percentile

75th percentile

Number of responses

2.25

2.50

3.00

43

Footnotes

  • (a) Note, respondents were asked whether their expected level and timing of the peak Bank Rate in this cycle was reflected in their central expectations for Bank Rate responses in question 1a. Where respondents selected ‘Yes’ their peak level was taken from those responses. 42 respondents answered the question this way. In the case where respondents selected ‘No’ they were separately asked for what they saw as the peak level for Bank Rate in this cycle with the results above being an amalgamation of these sets of responses. This can see the percentiles on expected levels for the peak level of Bank Rate differ from what may be inferred from the percentiles in 1a.

1bii) At which MPC meeting would you expect this peak to occur (month/year)? (a)

25th percentile

50th percentile

75th percentile

Number of responses

November 2022

December 2022

March 2023

43

Footnotes

  • (a) Note, respondents were asked whether their expected level and timing of the peak Bank Rate in this cycle was reflected in their central expectations for Bank Rate responses in question 1a. Where respondents selected ‘Yes’ their peak timing was taken from those responses. 42 respondents answered the question this way. In the case where respondents selected ‘No’ they were separately asked for what they saw as the peak timing for Bank Rate in this cycle with the results above being an amalgamation of these sets of responses. This can see the percentiles on the expected timing for the peak level of Bank Rate differ from what may be inferred from the percentiles in 1a.

1c) With reference to your answers to part 1a, how would you describe the balance of risks surrounding your expectations for Bank Rate at the following horizons?

Count

Out to the one-year point

At the two-year point

At the three-year point

Risks skewed towards a higher path for Bank Rate

22

13

10

Risks to Bank Rate path broadly balanced

15

22

24

Risks skewed towards a lower path for Bank Rate

5

7

7

1d) And where do you see the level of Bank Rate at which monetary policy is neither expansionary nor contractionary (often referred to as the neutral, natural or equilibrium rate) (%)?

25th percentile

50th percentile

75th percentile

Number of responses

2.00

2.00

2.50

42

1e) Please indicate the percentage chance that you attach to Bank Rate being at the following levels at the upcoming 4 August 2022 meeting (responses should sum to 100%). Bank Rate is currently at 1.25%. (a)

Factor

Mean weighting (%)

Number of responses

<0.75%

0.1

43

0.75%

0.1

43

1.00%

0.2

43

1.25%

2.9

43

1.50%

41.1

43

1.75%

52.1

43

>1.75%

3.5

43

Footnotes

  • (a) Answers for mean weighting (%) column may not sum to 100% due to rounding.

1f) It was noted in the June MPC Minutes that the market-implied path for Bank Rate ‘continued to be higher than the expectations for Bank Rate of respondents to the Bank’s latest Market Participants Survey’. Please weight the following factors in terms of their importance in affecting this gap between the Market Participants Survey central path for Bank Rate and the market-implied path. (Responses should sum to a total weight of 100% across these factors.) (a)

Mean weighting (%)

Number of responses

Domestic factors skewing the balance of risks to Bank Rate to the upside

27.0

43

Global factors skewing the balance of risks to Bank Rate to the upside

40.2

43

Market illiquidity/volatility and other technical factors in UK short rates

27.2

43

Other (please specify in the box below)

5.6

43

Footnotes

  • (a) Answers for mean weighting (%) column may not sum to 100% due to rounding.

Question 2: Expectations for balance sheet

2a) In the Governor’s Mansion House speech on 19 July, it was stated that ‘At its next meeting, it is also time for the MPC to discuss the strategy for beginning to sell the gilts held in our Asset Purchase Facility (APF) portfolio. We will publish, alongside the Monetary Policy Report, more detail on how we will do this, to allow financial market participants to make the necessary preparations. This will ensure we have the option to commence a sales programme shortly after a confirmatory vote by the MPC, which could be as early as at our September meeting’. It was also suggested that ‘we are currently looking at a total reduction in the stock of gilts held by the APF, which covers both sales and gilt redemptions, of something in the region of £50–100 billion in the first year’. Reflecting on this, what is your central expectation for the cumulative stock of gilts that the Bank may have actively sold by the following MPC meetings (£ billions)? (a)

25th percentile

50th percentile

75th percentile

Number of responses

3 November 2022 MPC

3

5

8

42

15 December 2022 MPC

8

10

12

42

2 February 2023 MPC

12

15

20

42

23 March 2023 MPC

18

21

27

42

11 May 2023 MPC

22

28

37

42

22 June 2023 MPC

27

33

43

42

One year ahead (August 2023 MPC)

35

49

62

42

Two years ahead (August 2024 MPC)

73

93

138

42

Three years ahead (August 2025 MPC)

101

125

204

40

Five years ahead (August 2027 MPC)

125

173

331

40

Footnotes

  • (a) The numbers presented in this table are respondents’ expectations for the cumulative stock of gilts the Bank may have sold in addition to the gilts not reinvested (as set out in the run-off profile published in Results and usage data on the Bank’s website and highlighted to survey respondents).

2b) What is the maximum amount of active sales that you think could be conducted in the 12 months following commencement that would not disrupt the functioning of the gilt market? (Noting the run-off profile in question 2a and that in the May Monetary Policy Report it was stated that ‘sales would be expected to be conducted in a gradual and predictable manner so as not to disrupt the functioning of financial markets’.) (£ billions)

25th percentile

50th percentile

75th percentile

Number of responses

50

60

75

38

Question 3: Expectations for gilt yields

3a) What is your central expectation for the 10-year gilt yield at the following points in the future (%)? The level of the 10-year gilt yield as of 5pm on 19 July 2022 was 2.18%.

25th percentile

50th percentile

75th percentile

Number of responses

End-September 2022

2.10

2.25

2.40

41

End-December 2022

2.00

2.45

2.50

41

End-March 2023

2.00

2.35

2.70

41

End-June 2023

2.00

2.40

2.75

41

End-September 2023

1.80

2.28

2.82

40

3b) What impact (if any) do you think expectations for reductions in the stock of gilt purchases have had on the current level of the 10-year and 30-year gilt yields (in basis points)? (a)

25th percentile

50th percentile

75th percentile

Number of responses

10-year gilt yield

0

5

14

38

30-year gilt yield

5

15

25

37

Footnotes

  • (a) A positive number represents an upwards shift in gilt yields in basis points (and vice versa for negative numbers).

Question 4: Expectations for exchange rates

4a) What is your central expectation for GBPUSD at the following points in the future? The level of GBPUSD as of 5pm on 19 July 2022 was 1.2021.

25th percentile

50th percentile

75th percentile

Number of responses

End-December 2022

1.1800

1.2000

1.2200

35

End-June 2023

1.2000

1.2250

1.2500

35

End-December 2023

1.2000

1.2500

1.2800

35

4b) What is your central expectation for EURGBP at the following points in the future? The level of EURGBP as of 5pm on 19 July 2022 was 0.8517.

25th percentile

50th percentile

75th percentile

Number of responses

End-December 2022

0.8500

0.8500

0.8500

35

End-June 2023

0.8300

0.8500

0.8600

35

End-December 2023

0.8050

0.8500

0.8700

35

Question 5: Expectations for inflation

5a) Please provide your central expectations for annual consumer prices index (CPI) inflation after each of the following time intervals. For reference, the most recent CPI print, for June, was 9.4%.

25th percentile

50th percentile

75th percentile

Number of responses

Six months ahead

8.20

9.40

10.65

42

One year ahead

4.83

5.50

6.00

42

Two years ahead

2.00

2.50

3.00

42

Three years ahead

2.00

2.20

2.80

41

Five years ahead

2.00

2.00

2.75

41

5b) With reference to your answers to part 5a, how would you describe the balance of risks surrounding your expectations for CPI at the following horizons?

Count

Out to the one-year point

At the two-year point

At the three-year point

Risks skewed towards a higher path for CPI

18

17

13

Risks to CPI path broadly balanced

17

16

24

Risks skewed towards a lower path for CPI

6

8

2

5c) In the Minutes of the June 2022 meeting, the MPC observed that ‘inflation compensation measures in financial markets had fallen modestly, but they had remained above their levels of the past decade’. Since then, market based medium-term inflation measures have continued to fall. Please weight the following factors (%) in terms of their importance in affecting this fall in medium-term UK inflation compensation measures. (Responses should sum to a total of 100% across the five factors.) (a)

Mean weighting (%)

Number of responses

Realised and expected MPC policy decisions

28.3

41

An unrelated easing in concerns over domestically generated inflation

11.5

41

Perceptions that global inflationary pressures may be lower in the future than previously thought

33.9

41

Market technical factors

22.9

41

Other

3.4

41

Footnotes

  • (a) Answers for mean weighting (%) may not sum to 100% due to rounding.
  1. Throughout, the Xth percentile is calculated by ranking the survey responses in ascending order and reporting the response which is ranked in position k where k is (X/100)*(sample size – 1) + 1. For numeric answers, where k is not an integer (ie this position lies between two responses), the result is interpolated by applying the percentile proportional to the distance between them. Discontinuous answers, such as policy meeting dates, are not interpolated. Instead, the first response which covers at least X% of the sample is reported.

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