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BOE Preview: Whispers Of 25bps

Submitted by Rajan Dhall from

All eyes are now on the midday announcement from the BoE, where a 25bp rate rise is only expected by a very few, but more anticipating signals that a move is forthcoming later this year.

The vote split will tell is whether Haldane - or anyone else - has moved to the hawkish camp, but with Forbes having left the commitee, a 6-2 split is also likely.  Comments from Messrs McCafferty and Saunders suggest there is little or no chance that they have changed their stance from the previous meeting.

Looking at the PMIs, the data is relatively healthy at the present time, with both manufacturing and services up on expectations as well as June levels, but for consideration at the MPC will be the growth rate, which has slipped from 2.0% in Q1 to 1.7% in Q2.

Wage growth is also a concern, but although earnings were down on May levels, Jun was not as soft as expected.

Inflation has also been coming off the highs, and the QIR will underline whether the committee expect this to a temporary development, but if GBP continues to rise, we think not. 

Growth projections will be overcast by the uncertainty of the Brexit process ahead, but any optimism will feed into near term policy 'views' - especially if there is no move this time around.

Even so, there is an element of 'one and done' if or when the 25bp rate hike does come, so looking beyond this, Sterling gains will be challenged if we get closer to the 1.3500 level, which against the EUR, we expect anything close to 0.8750-8800 will be seen as a healthy buying opportunity.

(EURGBP4HR Levels)

(GBPUSD 4HR Levels)

And here is ING:

Odds of a BoE rate hike today are slim-to-none in our eyes, although we suspect markets will be focusing on four things: (1) the MPC vote split and how close the Bank is to raising rates (we expect to see only 2 dissenters); (2) any change to the tolerance for above-target inflation; (3) if reining in credit growth is added as a policy judgement; (4) an emerging policy consensus within the MPC comms. Given that sterling heads into the Aug ‘Super Thursday’ meeting relatively supported, we think that the confluence of MPC views and an apparently incoherent overall policy bias will disappoint GBP bulls; a slightly flatter UK curve could see GBP/$ pullback to the 1.3100/50 area.