BoE to leave policy unchanged - TDS

Analysts at TDS expect the BoE to leave policy unchanged today (and indeed, until 2019), with a 7-1 vote as Kristin Forbes dissents at her final meeting as an external MPC member.

Key Quotes

“It has been just 5 weeks since the May IR, and there is little new information. May inflation exceeded the Bank’s May IR forecast by 0.3ppt, but so far the MPC has viewed the inflation overshoot as “entirely” driven by the weaker currency. Demand indicators remain mixed, so there’s little evidence that this assessment will change.”

“Rate expectations in 2020 have shifted back to those assumed in the May IR, suggesting the MPC will repeat that rates could rise more quickly than markets expect, but could also “respond in either direction”.”

“The MPC has been in “blackout” mode since mid-April (May IR excepted) because of the UK election. With purdah now lifted, Governor Carney kicks off a run of MPC speeches Thursday evening. The committee will have ample time between now and the August rate decision to elaborate on their policy views.”

“FX: Our base case calls for only modest upside risks for GBP as politics weighs. This week’s FOMC may cast a longer shadow over cable unless an unexpectedly clear signal is made over the future path of monetary policy.”

“Rates: We have seen a decent shift lower in two-year ahead rate expectations, so an unchanged BoE message should see the market price some tightening back into 2018, with less move in the dovish case.”