Wednesday, September 9, 2015

BoE Preview: Dovish tone expected but gear up for Feb rate hike - BAML

FXStreet (Delhi) – Research Team at BAML, expect the tone of BoE to be slightly more dovish when they meet on Thursday but that does not rule out the February rate hike expectations, they add.

Key Quotes

“August has on the face of it been unkind to our call for a February BoE rate hike. The world looks a more worrying and worried place. The BoE will have to recognise that, which could give a more dovish feel to Thursday’s BoE policy meeting minutes. There is no need for the BoE to sound hawkish right now. Indeed, their job is to show they are data dependent.”

“The BoE will probably highlight that a modest downgrade of world growth will shift UK growth prospects only a little, even if the potential downside risks have risen and warrant additional caution. That should temper the dovish feel.”

“Sterling’s slide could boost prospective price pressures, though for the BoE that probably just partially offsets what would otherwise be downside news from world price pressures.”

“Fundamentally, unemployment has fallen close to pre-crisis levels, wage growth has picked up and the UK’s real Achilles heel, productivity, now seems less of an issue. In short, the UK recovery is more firmly grounded than it was a few years ago, which drives, in particular, Mark Carney’s more hawkish tone recently.”

“Given the wobbles, Ian McCafferty is likely to remain the lone voice voting rate hikes for at least a couple more months. But that does not pose a problem for our February call and does not suggest the BoE will have to delay hikes until next August, which is the current market view.”
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