Citi discusses its expectations for the BoE policy trajectory.
"Citi Economics says Wednesday’s gilt intervention is in their view unattractive, but necessary. With adverse, self-perpetuating dynamics beginning to take hold, the Bank has justifiably chosen to step in as market maker of last resort. The dimensions of the scheme make clear this is a liquidity insurance measure. The intervention provides crucial space for the government to now set out its medium-term plans. As we see it, the ball is now very much in Chancellor Kwarteng’s court," Citi notes.
"We expect a substantial fiscal announcement now in the week of the 11 October. If the government is able to meaningfully re-assure the markets, the pressure on gilts could ease. If not, the Bank is still likely to face a Faustian bargain between a sharp revaluation of gilts and a further selloff in sterling. We expect a hike of 100bps in November, but there may well be more," Citi adds.