Rabobank on the BoE

On balance, we are coming around to the view that the BoE may be prepared to hike interest once either in November 2017 or February 2018 and then sit back for a while digesting the impact on GBP and on consumption in particular. We will fine tune this view in the coming weeks dependent on UK economic data and the path of GBP.  Not only would a policy move consolidate the support provided to the pound by the Bank’s hawkish rhetoric, but it would protect the central bank’s credibility.  Following so much hawkish talk, the Bank will be expected to put its money where its mouth is in the coming months to prevent a resurgence of criticism along the lines that it is behaving as “an unreliable boyfriend”.  

Previously we had forecast that BoE policy may be on hold until August next year. Coincident with the change in our view we have bolstered our forecasts for the pound.  That said, we still see GBP as being vulnerable to political uncertainty and growing alarm regarding the prospects of a hard Brexit in May 2019.  We also expect that this year’s broad rotation back into the EUR has further to run.  Consequently we see EUR/GBP as slipping back towards the 0.90 area around year end and pushing towards 0.95 next summer.  These forecasts assumes that the pace of Brexit talks remain slow and that UK firms continue to put contingencies for a hard Brexit into position. 

19 Sep 2017 - 11:25- Fixed IncomeEconomic Commentary- Source: Rabobank

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