Today sees the BOE’s monetary policy meeting where the MPC will gather round over tea and scones to debate the path of UK interest rates. While nothing will happen on rates at this meeting it hasn’t stopped the market from running from pillar to post on when rates will rise.
The recent slowdown in the economy has had many now pushing rates expectations further out into 2015. Mr Carney’s Mansion House comments are a long distant memory now and the market reflects the changes.
- The SONIA rate now show a 33% chance of rates rising in February.
- It was standing as 60% back in mid September.
- The rate’s main consensus is now for July.
- In a Bloomberg survey, sometime in Q1 2015 is the majority choice.
Even with the slowdown in the economy it’s not going to stop rate rises coming. Central banks are getting twitchy about low rates and they want to start raising. We’re not going up 2% or 3% anytime soon but they want to get rates up and the sooner the better. Even with the economy at the level it’s at now it can sustain a 25bp rise. If people on the street get creamed because of a small rise in rates it’s because they haven’t spent the last five years fixing their finances.
The only way rate hikes will be pushed back by the MPC is if we see a really big slide in the economy. That may well happen with Europe still stuck in the mud without a tow rope, but it will have to be a major reversal. At the moment I can see us seeing out the year more or less at the level we’re at now and the early new year data will be the big judgement point for the UK.
All eyes will be on the release of the minutes two weeks later to see if anyone has changed nests but we’re likely to see the same two hawks (McCafferty & Weale) out on their own for now.
Spot the hawks
