BoE: Holding its nerve? – Rabobank

In view of Jane Foley, Senior FX Strategist at Rabobank, the final approach to the September 14 Bank of England policy meeting is producing some support for the pound even as recent surveys have suggested that there has been very little enthusiasm in the market for a rate hike before the end of next year.

Key Quotes

“Some commentators are of the view that rates could remain on hold until 2019 primarily due to the impact of inflation on real earnings.  However, there is good reason for investors to question this outlook.  Last month BoE Governor Carney warned that “if the economy follows a path broadly consistent with the August central projections, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections”.  In August, two members of the MPC voted in favour of an immediate 25 bps rate hike and the market is currently assessing the probability of the number of dissenters rising this month.  On balance, we expect the majority of the committee to remain in favour of steady rates until August 2018 at the earliest, though we expect most MPC meetings between now and then to contain hawkish undertones.”