A look at Thursday's Bank of England rate decision
The Bank of England will view the latest market moves as excessive and try to push back by warning that rates could rise faster if there is a smooth Brexit.
In defiance of the BOE, the market is pricing in a 31% chance of a cut in the year ahead and only a 2% chance of a hike.
UBS warns that Haldane and/or Saunders could dissent in favor of a hike at this meeting but they think it will be unanimous.
The message from the BOE will likely be some form of a repeat that markets were pricing in less tightening than the BOE. If that message is softened, the pound could slide. UBS believes that even a hawkish message will be brushed aside by the market.
"We think the MPC will be unhappy with the extent of recent repricing, but with such uncertainty around Brexit developments we doubt even an overtly hawkish message will have much sustained traction on front-end yields," they wrote in a note.
UBS is out with a separate note on Brexit with the following probabilities:
- General election 40%
- No deal 25%
- Referendum 25%
- Deal 10%
