Research Team at Nomura continue to think that the BoE’s forecasts remain consistent with the MPC raising rates in February – contingent of course upon a good Brexit deal being delivered in the coming weeks.
“Even then, the Bank was at pains to repeat that its response to a ‘no-deal’ Brexit (which Mr Carney said was not the most likely outcome) would not be to automatically loosen policy. Rather, that would depend on the response of demand relative to supply from such an outcome. Though of course we suspect that a no-deal, with all the uncertainty it would bring, would not lead to a rate rise in February as we currently expect.”
“As for the budget – it is worth repeating what the Office for Budget Responsibility said about this on Monday: “We assume that financial market participants will not have fully anticipated the scale of the fiscal giveaway – perhaps assuming that some of the additional health spending would be financed by tax rises – and that it will not therefore be fully reflected in the market interest rate expectations that underpin our forecast.” If anything, accounting for this in the Bank’s forecasts would only add (in our view) to its inflation and growth expectations published yesterday. Expect to hear more from the Bank about the budget and its macroeconomic implications at next month’s policy meeting.”