BOE to remain on hold – BBH

Analysts at BBH suggest that the market has been more confident of a BOE rate cut than they have been over the past several weeks.

Key Quotes

“We had thought that the combination of slowing growth, expectations that CPI is near a peak, the continued risks associated with Brexit would allow the BOE to remain on hold.  During his tenure, Carney has often resorted to hawkish rhetoric without delivering.   We expect two-three dissents from a decision to raise rates.”

“Market Impact:  As the ECB delivered a dovish tapering, the BOE can deliver a dovish hike.  Through its forecasts and minutes, the MPC can suggest that this meant to take back the rate cut delivered after last years referendum.  It is not the start of a tightening cycle.  Sterling could be sold, but it may depend on the broader dollar direction.  We suspect the interest rate market will adjust.  It seems out of alignment that the UK two-year Gilt is yielding almost half as much as the December 2018 short-sterling futures contract (46 bp vs. 88 bp).  The December 2019 short-sterling contract yields 108 bp.”