Commenting on the Bank of England monetary policy statement, Nordea Markets analyst Morten Lund noted that the bank kept its policy rate on hold as expected while waiting for Brexit developments and argued that a rate hike in August could be possible if the EU were to grant a long Article 50 extension to the UK.
Key quotes
“The BoE’s hands are currently tied as the bank awaits further news on Brexit. If either Theresa May manages to pass her deal before March 29 or if the UK and EU agree to a long deadline extension, we think it is plausible that the BoE will hike in August. Thus, both outcomes should decrease uncertainty somewhat in the short-run and make room for a hike, as the “wage hawks” in the MPC probably have been wanting for a while.”
“In case of a short extension to June 30 – as Theresa May has officially asked the EU for – the risk is clearly tilted towards a rate hike in November instead of August. Hence, the MPC will most likely need to see some months of data points with evidence that growth is bouncing back, before making a hawkish move.”
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