Scotiabank says BOE hike is closer to call than market pricing suggests
Scotiabank's head of European fixed income strategy, Alan Clarke, spoke to Bloomberg earlier
Clarke says that a BOE rate hike in May is not a shoe-in, and that it is much closer to call than what market pricing suggests (OIS market has a May rate hike priced at 84.1% probability).
He argues that weak data - including a lower than expected CPI figure tomorrow - between now and the BOE's meeting in May could potentially see a rate hike taken off the table by the central bank.
The market is looking for a 2.7% y/y headline reading on CPI tomorrow, and if it comes in lower it builds into the narrative that the UK economy may be starting to turn the corner and the strain felt by the consumer may start to go away.
But a lower inflation also begs the question of "is inflation heading lower below 2% based on its current trajectory?". With sterling being the best performing major currency so far this year, and the fact that cable has recovered almost 3/4 of its Brexit fall, how sure is the BOE that inflation will remain just above 2% after they look towards hiking rates one more time?
While I still think the data will not stop them from moving in May, it certainly suggests that the BOE will likely stay on hold for the rest of the year.