Bank views on tomorrow's BoE decision, markets price a 29% chance of a hike by end '17, with a full hike being priced in around November '18
Barclays: We expect real core wage growth to remain in negative territory for the rest of the year, weighing on consumption and likely deterring the BoE from any imminent rate hike despite upside surprise in August inflation.
BofA Merrill Lynch: We are making a point about words not deeds and risks not central case. We still expect a 7-2 vote for unchanged rates. With inflation likely to slow after peaking in October, the BoE would have time to watch the data. We still expect weak growth to prevent hikes until 2019 at least. We have been here before with a wage spurt fading quickly. But unemployment is lower than in early 2016. The risks of a hike are not zero and may be growing.
Commerzbank: With no significant changes to the economic picture compared to last month, it is unlikely that there will be any changes in the policy stance. That said, one of the surprising elements of the Q2 GDP release was the weakness of household consumption growth, with non-retail activity contracting for the first time since 2014. This poses clear downside risks to the growth outlook which is likely to prompt the MPC to hold fire.
Goldman Sachs: We expect the MPC to vote 7-2 in favour of an unchanged Bank Rate. In the minutes. GDP growth is tracking somewhat firmer than the MPC’s August Inflation Report forecast. The unemployment rate has edged down further (albeit in line with the BoE’s forecast). Nonetheless, there has been further evidence this month that the growth slowdown since the turn of the year has been focused on a weaker consumer. We expect the MPC to be especially sensitive to this component of its forecast, which encourages a more neutral message. We expect the Committee to reiterate its view that, given its outlook for the economy, “monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve.” We do not, however, expect either the summary or the minutes to convey any additional urgency about getting that process of rate normalisation under way soon, beyond the two votes we expect for an immediate rate rise. We continue to expect a rate increase from the BoE in Q418.
ING: Disappointing 2017 for wage growth continues. Monetary Policy fallout is limited as the BoE pencilled in a modest 2% wage growth forecast. Risks shift back to a status quo 7-2 MPC split vote as 'silent hawks' may stay on the sidelines given little underlying inflation.
RBC: On balance we continue to see the pragmatists holding sway on the MPC and keeping rates on hold for the foreseeable future, given uncertainty about the extent of the consumer slowdown ahead, and building risks with the Brexit process. However, we appreciate that for some members, above-target inflation, and further erosion of labour market slack, will result in their individual policy conclusion being different. So, whilst we maintain a central case expectation for a 7-2 vote at tomorrow’s MPC decision, the risk is that it could be a 6-3 split, with Haldane most likely to be the additional hawkish dissenter.
SocGen: The market is now becoming accustomed to McCafferty and Saunders voting for rate hikes and expects them to continue to do so. As we have highlighted many times, the MPC has revised down its estimate of NAIRU to “around 4.5%”. It would then be reasonable to infer that the MPC thinks that the output gap has now closed. “Through most of the forecast period, the economy operates with a small degree of spare capacity and CPI inflation is well above the target. By the end of the forecast, that trade-off is eliminated. Spare capacity is fully absorbed, and inflation remains above the target.” That was conditioned on an OIS curve that, at the time, did not predict another rate increase until the second half of next year. The new element in the September meeting will be the arrival of Sir David Ramsden. He is not a stranger to the MPC, having been the Treasury’s (non-voting) observer on the committee for a long time. Call us cynical if you like, but we expect that he will act according to the Treasury outlook on the world which is usually to favour growth over inflation concerns. That means we expect him to vote for no change at the meeting, moving the vote to 7-2.
13 Sep 2017 - 15:15- Fixed IncomeBank Speaker- Source: Barclays/BofA Merrill Lynch/Commerzbank/Goldman Sachs/ING/RBC/Societe Generale
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