BoE: A united hike – Nordea Markets

Andreas Wallström, Analyst at Nordea Markets, notes that as generally expected the Bank of England raised its policy rate today and going forward, the bank judges that an ongoing tightening would be appropriate over the forecast period.

Key Quotes

“We forecast, however, an unchanged rate throughout 2018 and 2019.”

“As expected Bank of England (BoE) decided to raise its policy rate by 25 bps to 0.75 percent. The MPC was unanimous in its decision, which came as a bit of a surprise as there were speculations that the previous doves Cuncliffe and Ramsden would vote for keeping the bank rate unchanged.”

“The decision sent the sterling somewhat higher initally but then fell back again later.  The  UK government bond yields stayed largely untouched.”

“In its new  Inflation Report, the GDP growth forecast was largely unrevised. The unemployment forecast was revised down somewhat further and is now expected to level out at 3.9% during 2019. More importantly, however, the  inflation forecast  was revised somewhat higher for both 2018 and 2019, while unchanged at 2.0% in 2020.”

“We expect a rather slow economic development ahead and the downward trend in inflation to continue. Also, the Brexit debacle seems not near a favourable outcome.”

“In this environment there are no convincing arguments for pushing through further rate hikes. Hence, we forecast that the Bank of England  leaves its policy rate unchanged through the rest of 2018 and 2019.”