• The new UK government seems to have restored some economic credibility. The recent fall in gilt yields will lower the amount of fiscal consolidation required in the Autumn Statement, now due on 17 November. 


• The bigger test for the government’s fiscal policy will come next year, with economic and market constraints making fiscal easing difficult even in the face of a recession. 


• In the much shorter term, we expect the Bank of England to hike rates by 75bps at its November meeting. We continue to think a 100bps hike would be more appropriate. But with market and economic consensus clustering around a 75bps move, this now looks the most probable outcome.  


• The Bank is clearly uncomfortable with the current, aggressive path of market-implied interest rates, seeing it as excessively contractionary given the headwinds facing the economy. What remains to be seen is how open the market will be to a more dovish message from the Bank. After all, the MPC has tended to significantly underestimate how much monetary tightening it ultimately delivers. 

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