Bank of England meet Thursday - preview

Author: Eamonn Sheridan | Category: Central Banks

UK inflation data (out Tuesday)  surprised to the topside:

Even before this data Bank of America / Merrill Lynch had this note out:

  • We expect a more hawkish BoE statement after Thursday's policy meeting on signs of life in wages and sterling's fall. 
  • Rates: potential for a hawkish BoE relative to dovish market pricing could see shake up of renewed longs in the front end. 
  • Sterling likely to be more responsive to hawkish MPC rhetoric than dovish. But near-term bias remains lower on politics.
We are making a point about words not deeds and risks not central case. We still expect a 7-2 vote for unchanged rates. With inflation likely to slow after peaking in October, the BoE would have time to watch the data. We still expect weak growth to prevent hikes until 2019 at least. We have been here before with a wage spurt fading quickly. But unemployment is lower than in early 2016. The risks of a hike are not zero and may be growing.

On GBP impact: 
  • As a result, a less dovish MPC (our economists' central call) is likely to provide some support for GBP.
  • However, we reiterate our current call for a weaker GBP heading into a series political events that we think will test the market's belief that a transition agreement will be announced sooner rather than later