The Bank of England's much anticipated Monetary Policy Committee decision is today, Thursday 2 November 2017
Due at 1200 GMT, along with the Bank's inflation report
I have posted previews up already:
- Preview of the BoE monetary policy decision - & the impact on GBP (Barclays)
- Bank of England meet November 2 - preview (once in a decade hike) (RBC)
This now via Société Générale; in a nutshell:
- we believe the BoE will also validate market expectations of a November hike while at the same time reassuring the market that a second rate rise remains some way off.
- Forex and rate market moves are seen as limited on this outcome.
SG's note is detailed, but I have summarised the part with their "three main scenarios":
1. No rate hike
- this would be disruptive
- expectations would roll forward to a future meeting
- February is likely to become the next most likely time for a rate rise
- It may make sense to wait until February ... (we should know where the peak in CPI is, what happens in the Budget and have an idea as to how growth held-up into year-end)
- Sterling is bound to come under at least temporary downward pressure... EUR/GBP would rise modestly, but probably not reach the October highs around 0.90. GBP/USD would probably test 1.3070, where there is strong support.
2. Rate hike of 25bp with a dovish Inflation Report - the expected outcome
- broadly what the market is pricing in
- follow-up tightening will be data dependent
- economy expected to slow in 2018, ahead of Brexit, opportunity to hike will be limited
- he market will continue to price gradually tighter policy in the months ahead
- A dovish hike (interpreted by markets as 'one-and-done') is neutral for sterling
- we would not be surprised to see a slight GBP rally on this outcome, simply because sentiment towards sterling is already pretty gloomy and the market might be tempted to price in a hike in 2018 with greater conviction.
3. Rate hike of 25bp with a more hawkish Inflation Report
- The impact of this may be restrained if a sizeable minority vote to keep policy on hold ... as it would lack credibility
- However, a decisive vote and a statement suggesting the Bank needs to tighten policy to a more neutral rate would run counter to the previously stated view that hikes will be 'gradual'
- This is not expected, is inconsistent with most forecasters' views of the economic outlook, and in the longer run, might be seen as damaging for the economic outlook
- in the short term, it would challenge market positioning and consensuses. EUR/GBP could fall as far as 0.85, a level we haven't seen since May, when EUR/USD was trading under 1.09. Assuming the EUR/USD was unaffected, this could take GBP/USD above 1.35