The Bank of England Monetary Policy Committee (MPC) meet this week
I have posted up previews earlier:
From Barclays;
From Nomura:
- The Bank of England meet next week - preview (20 reasons the MPC will hike rates)
- The Bank of England meet next week - scenarios, strategy & what to expect on GBP
This now via MS (in brief, bolding mine):
With the output gap closed and inflation above target, a hike remains possible. But with growth slow in 1H and inflation dipping, we see a narrow majority for unchanged policy.
In the end, we think the doves hold on...
- An August hike still looks entirely possible, and we expect a hawkish tone to this Inflation Report.
- Three members voted for a June hike (see here), of whom two are still on the MPC. Chief Economist Haldane turned hawkish.
- MPC tolerance for an inflation overshoot falls as the output gap closes - and the unemployment rate is now at its equilibrium on the BoE's estimate.
- But three MPC members (Vlieghe, Broadbent, Cunliffe) have said that now is not the time to hike, marking them as doves, while for the two members (Carney, Tenreyro) where it is less clear cut, we think they are more likely than not to stay on hold in August.
...given weak growth, weak domestic inflation and political uncertainty: Underpinning this vote, we see three reasons why the MPC stays on hold:
- 1) 1H growth has been weak;
- 2) Although inflation is above target, it dipped sharply in June, and pay and services inflation (proxies for domestically generated inflation) remain subdued;
- 3) We think the hurdle to a rate rise is higher following the recent sharp increase in political uncertainty.
Nudging the growth forecast lower:
- We expect the BoE's above-consensus growth forecast to be nudged down. We expect the inflation forecast to be broadly unchanged and still above target at the forecast horizon.
On hold until Brexit is done:
- We think that the MPC will react to the data, leaving the door open to an opportunistic hike if data surprise to the upside. But we expect below-par growth due to the consumer squeeze to stay its hand, and 2H18 weakness at the crunch point in the Brexit talks to shift the balance of risks to easing.
- In terms of our MPCometer, the main shifts since the May Inflation Report have been Haldane's switch from one of the stand-out doves to a hawk and Carney's repositioning from being a clear dove to a more neutral position.
FX strategy:
- We expect GBPUSD strength to be limited to 1.33, which we would use as an opportunity to sell. FX moves over the event will depend on how many members vote for a rate hike.
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In summary, MS are exprecting on hold but they do note that An August hike still looks entirely possible
