t widely expected (Rates markets are pricing in a 90% probability of a hike) the Bank of England (BoE) Monetary Policy Committee will hike policy rates 25bp after 10 years. We are expecting MPC 7-2 vote split with committee members Cunliffe and Ramsden dissenting for a no action. David Ramsden indicated that he was not with the majority while Jon Cunliffe expressed concern over the timing of rate hikes (Silvana Tenreyro is data dependent and could go either way). The view is already priced into the GBP so the key issue will be the accompanying communications.
We suspect that bank will reduce its current hawkish tone by reinforcing the strategy of “one-and-done.” Our view for a softer tone is based on expectations for wage inflations decelerate which the Inflation report should provide hint towards. In addition the bank has downgraded growth forecast for 2017 to 1.7% from 1.9% as consumer spending (and slower wage growth). We anticipate that Brexit related uncertainty will damage sentiment and inflation outlook pushing the next rate hike at least 6 months away.
By Peter Rosenstreich