The rise and fall of expectations for a BOE rate hike in May
Article on Bloomberg
The expectations for a May rate hike have moved backwards and forwards and are now firmly on the back burner. Here is a brief history of how we got to where we are today, of little to no expectations of a May rate hike.
- November 2, 2017: A dovish hike. Two of the nine MPC members dissented and BOE noted 'considerable risks to the outlook.
- February 8, 2018: Labor market up, growth up and inflation report sent a shock into the markets. It was high and Carney said rates needed to rise, 'somewhat earlier and to a somewhat greater extent'. (Chance of May hike 74%)
- February 24th to March 19th: Brexit future clearing. Weather was terrible with the cold weather, nicknamed the 'beast from the east, gripping the UK. Although this would come back to slow Q1 growth, at the the time the mood was good and confidence increasing. (Chance of May hike +80%)
- March 22-March29th: MPC meeting came and no attempts were made to silence expectations for a May hike. Silence spoke volumes and policy maker Gertian Vlieghe made some hawkish comments. (Chance of May hike +91%)
- April 17-19: Wage growth fell, inflation slowed to the weakest in year and retail sales plunged (the weather effect biting). Investors back-pedalled on two hikes for the year, buy May was still on the cards for a rate hike. (Chance of May hike +82%)
- April 19th: In a BBC interview Mark Carney played down immediate rate hikes. The GBP tumbled and the chance of a May hike went to 48%.
- April 27th -30th: UK released worst Q1 results since the end of 2012. May hike chance down to 18%
- May 1-3: PMI reports out of the UK showed only a slight rebound at the start of Q2. Chance of rate hike, less than 10%
May the 10th will be the policy decision, with a press conference held 30 minutes later. No rate hikes are expected, but it will be interesting to see what the BOE are thinking about the future path of rate hikes. If they cast doubt on a rate hike for August or even beyond we can expect further GBP downside. Eyes and ears open in the run up to and for May the 10th.
