BoE: MPC to keep the prospects of a few 2019 and 2020 rate hikes in play - Rabobank

Analysts at Rabobank point out that alongside the ECB, the Bank of England is also due to announce its monetary policy stance today and they expect few surprises from the British central bank. 

Key Quotes

“After August’s rate hike we now fully expect the BoE to await the results from the Brexit negotiations. The slow progress in these talks is worrisome and will push an accord on the withdrawal agreement to the latest possible moment, somewhere in November or even December.”

“Indeed, although the EU and the UK remain actively engaged in the negotiations, both sides have also stepped up preparations for a potential no-deal scenario. Importantly, Carney has recently noted that –although the Bank has no formal projections for a no-deal scenario– markets shouldn’t blindly expect the Bank to loosen the monetary reins in order to ease the impact of a no deal Brexit on UK growth.”

“The Committee is also considering risks that a no-deal Brexit would cause significant sterling depreciation, which in turn would drive up inflation. That would require the exact opposite policy response.”

“In short, then, we expect the MPC to keep the prospects of a few 2019 and 2020 rate hikes in play and to do its best to make sure that the (perceived) increased risk of a hard Brexit is not immediately translated into a much flatter OIS curve.”

“If the MPC is successful, this should provide the currency with some much-needed support if fears of a no-deal Brexit rise further, which in turn should help with keeping inflationary pressures contained. We stick to our view that May 2019 is the first realistic opportunity for the MPC to raise Bank rate to 1.00%.”

“So for potential surprises, we are mainly left to watching the Turkish central bank. The question remains whether, and to what extent, the central bank will be able to raise rates considering the political reluctance against higher rates.”