The Bank of England meet on August 3 (next week) - here is a preview via Nomura

(early ps. I have also just posted this from the bank:

)

Nomura is calling for a rate hike, setting the probability at 60% for a 25bp rise

  • Notes that markets are pricing in less than a 10% chance of a 25bp hike .... and that "market pricing seems particularly low with the Bank having warned repeatedly about its limited "tolerance" for above-target inflation since the end of last year" ... "we do not believe that the market is appropriately priced for the risk of a rate rise next week"

The 20 reasons (in very brief)

(Nomura classify their 20 reasons "into five distinct categories: economic recovery, labour market, inflation, monetary policy issues and financial stability")

Economic recovery:

1. Global recovery is more synchronised

2. UK PMIs ... composite index ... currently stands within half a point of its long-run average. Other surveys ... also retained strong readings

3. We have recently revised up our forecasts for business investment

4. UK macro surprise indices ... have turned negative over the past month, ... there have been few occasions that they have not been positive over the past year ... .UK economy has proved far more resilient following the Brexit vote than had been expected

5. Measures of the output gap have turned positive

Labour market:

6. The unemployment rate has fallen to its lowest level for over 40 years
7. Other indicators of labour market tightness suggest there is notably less slack

8. Measures of wage inflation are beginning to show signs of life

Inflation:

9. Bank of England target measure of CPI inflation ... remains above 2%

10. Signs that domestically generated inflation is rising, or at leastbottoming out
11. Bank of England's own forecasts for CPI inflation show it rising

Monetary policy issues:

12. 25bp rise in interest rates represents a relatively small move

13. An earlier rise in interest rates may avert the need for a swifter tightening further ahead
14. It takes time for moves in policy to be felt on the real economy ... If the Bank were to wait for second round effects to show up then the MPC may have left monetary tightening too late

15. If the Bank of England were to raise interest rates in August then we cannotsay we had not been warned

16. Monetary conditions are too loose for current macroeconomic conditions

17. The MPC has proved willing to be proactive before

18. The Bank has been around twice as willing to change policy settings on Inflation Report meetings (33% of occasions) than it has on non-Inflation Report meetings (16% of occasions)

Financial policy issues:

19. A perfect storm for credit growth has been brewing

20. The FPC has already responded to the improved risk environment and stronger lending growth by raising the countercyclical capital buffer to 0.5% ... The MPC should raise interest rates because it is responding to thesame set of circumstances as the FPC

--

  • Statement due at 1100GMT on August 3, 2017
  • Along with the Inflation report