Historic BoE rate hike expected, but could the unreliable boyfriend return?


Mark Carney BoE

The following guest post is courtesy of Jasper Lawler, Senior Market Analyst at FCA regulated broker LCG.

Do you have an idea for a guest post? Want your article to be viewed by the hundreds of thousands of viewers who regularly visit LeapRate and receive our daily email newsletter? Let us know at [email protected].


Jasper Lawler LCG
Jasper Lawler

The BoE will give its highly anticipated interest rate decision on Thursday. Despite all the uncertainty surrounding Brexit, the central bank is widely expected to raise interest rates by 0.25% to 0.75%, a move which had initially been planned for May but was cancelled after a weakening in the economy; and a move that is currently 90% priced into the markets.

The return of the unreliable boyfriend?

Whilst the markets are almost completely certain of a hike, there are plenty of reasons why the BoE could hold off from raising interest rates. Economic data, whilst an improvement on Q1, remains uninspiring, which when combined with the political outlook could mean that Carney & co. will adopt a wait and see approach. This would be a repetition of May, and cement the title of unreliable boyfriend for Mark Carney; a criticism that he would most likely wish to avoid. With this in mind, the BoE are looking fairly boxed in.

Hike to reverse?

Should the BoE move on interest rates, this will be the first time in a decade that rates will be above 0.5%. But how long will they stay there?

There is an increasing feeling that the BoE are looking to raise rates, not so much because the UK economy is giving off signals that it is in an optimal position for rates to be hiked, but more because it wants to create some room to cut rates in the increasingly likely event that the UK crashes out of the EU without a deal. Why else would you look to raise rates when both growth and wages are subdued and inflation falling towards the BoE 2% target? There has been plenty of time to normalise rates in the last ten years, so now seems an odd time to prioritise normalisation.

Forward guidance & vote split

Given that the pound has almost completely priced in the hike, investors will be listening carefully to the forward guidance and the vote split to assess whether this will be a one and done dovish hike, or whether there is likely to be a second hike later in the year. Whilst a rate hike on Thursday is 90% priced, another increase is not expected until August 2019.

Unreliable BF part II

Should Mark Carney, the unreliable boyfriend make an appearance again and the BoE pull back from hiking, preferring a wait and see approach until November, the pound is likely to tumble. A test of the $1.30 level on the day of the meeting seems very plausible if there were no hike.

If we see another dovish hike, similar to what we saw in November, where the lift in interest rates was accompanied by very cautious comments from Carney, plus evidence that the MPC was not unanimous in its vote to hike, then there is a good chance that the pound could actually fall lower following the meeting.

A 5-4 vote split would itself be a disappointment and could see the pound drop lower. With a 6-3 vote split or better we expect the pound to rally. Whether that rally is able to last is questionable given the Brexit clouds gathering on the horizon.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please note that 79 % of our retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing money.

Related News

arrow

Historic BoE rate hike expected, but could the unreliable boyfriend return?

0

Send this to a friend

Subscribe to LeapRate
PGlmcmFtZSBzcmM9Ii93cC1jb250ZW50L2E0bHIvaGFuMTZyZXNfNjI1eDQwMC5odG1sIiB3aWR0aD0iNjI1IiBoZWlnaHQ9IjQwMCIgZnJhbWVib3JkZXI9IjAiIHN0eWxlPSJib3JkZXI6bm9uZTsiIHNlYW1sZXNzPjwvaWZyYW1lPg==
PGlmcmFtZSB3aWR0aD0iNjQwIiBoZWlnaHQ9IjM5NSIgc3JjPSJodHRwczovL3d3dy55b3V0dWJlLmNvbS9lbWJlZC80Mzc5MThJbFc5ST9yZWw9MCZjb250cm9scz0wJnNob3dpbmZvPTAiIGZyYW1lYm9yZGVyPSIwIiBhbGxvdz0iYXV0b3BsYXk7IGVuY3J5cHRlZC1tZWRpYSIgYWxsb3dmdWxsc2NyZWVuPjwvaWZyYW1lPg==
Fill out the form below for more information
for lising in LeapRate's Forex Yellow Pages

Please enter the company name, email address to reach you and phone # (optional):

Please fill out the message field to the right for any questions or special inquiry:
PGlmcmFtZSBzcmM9Imh0dHBzOi8vczMtZXUtd2VzdC0xLmFtYXpvbmF3cy5jb20vZW1haWwubG1heHN0YXRpYy5jb20vaHRtbDUvTGVhcHJhdGUvTE1BWERpZ2l0YWwyNTB4OTAvTE1BWERpZ2l0YWw2MDB4NDI1UG9wVXBHcmV5Lmh0bWwiIGZyYW1lYm9yZGVyPSIwIiB3aWR0aD0iNjAwIiBoZWlnaHQ9NDI1Ij48L2lmcmFtZT4=
PGlmcmFtZSBzcmM9Imh0dHBzOi8vd3d3LmxlYXByYXRlLmNvbS9hNGxyMTcvdWZ4MTgvNjAweDQyNV8xc3QtVGltZUxlYXBSYXRlLWVuLUdCX0hUTUw1Lmh0bWwiIGZyYW1lYm9yZGVyPSIwIiB3aWR0aD0iNjAwIiBoZWlnaHQ9NDI1Ij48L2lmcmFtZT4=
PGlmcmFtZSBzcmM9Ii8vY2RuLmJhbm5lcnNuYWNrLmNvbS9iYW5uZXJzL2JjaWVod29iOC9lbWJlZC9pbmRleC5odG1sP3VzZXJJZD0zMTU5MzQwNiZ0PTE1MTAxMzg3MTAiIHdpZHRoPSIxMDAlIiBoZWlnaHQ9IjEwMCUiIHNjcm9sbGluZz0ibm8iIGZyYW1lYm9yZGVyPSIwIiBhbGxvd3RyYW5zcGFyZW5jeT0idHJ1ZSIgYWxsb3dmdWxsc2NyZWVuPSJ0cnVlIj48L2lmcmFtZT4=