BoE: MPC heading towards an August hike – Nomura

Analysts at Nomura point out that most watchers expect a 7-2 split in favour of no move according to Bloomberg consensus, unchanged from the last BoE meeting.

Key Quotes

“It shouldn’t really matter if one of the hawks leaves the ranks or someone else votes for a hike, but the market will likely still react to it.”

“Then there is the language used in the summary, the most important line being:

“The Committee’s best collective judgement therefore remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon.”

“Our assumption is that this remains unchanged. Currently, just under a 50% likelihood of a 25bp August hike is priced in. Our view is that the MPC is heading towards an August hike and thus would prefer the pricing to be a little higher. However, we note that in the run up to the May meeting, Governor Carney was uncomfortable with the market pricing in an extremely high probability of a hike.”

“The easiest way to understand the MPC’s perspective is that it wants the data to push the market’s pricing, not its communications (so long as the framework is well understood).”

“Presumably the same applies to the Mansion House speech that Governor Carney delivers that evening.”

“We will be paying attention to the speech, but our base case remains that the MPC and Carney’s Mansion House speech will lean a little hawkish, but nothing too extreme.”