Back
5 Feb 2016
BoE: Next rate move is up and not down - Investec
Research Team at Investec, suggests that yesterday's ‘Super Thursday’ UK event saw the Bank of England’s MPC keep interest rates at the record lows, with the minutes showing a 9-0 vote (Ian McCafferty is no longer calling for a hike).
Key Quotes
“The Quarterly Inflation Report adopted a dovish tone, downgrading near term growth and inflation projections, suggesting that inflation would be marginally above the 2% target in two years’ time. This is on the basis of a much flatter yield curve now compared to the last inflation report in November, combined with a 3.5% fall in the trade weighted value of sterling.
Although the release was initially met with Sterling selling, the subsequent press conference from Governor Mark Carney, sent the Pound back higher towards pre-event levels. Carney adopted a more upbeat tone on the economy than one would have expected. He also confirmed the entire MPC believe the next rate move is more likely to be up than down, going as far as to say the market’s current path of pricing implies the BOE will overshoot its inflation target, as not enough tightening is priced in.
Governor Carney did not comment on the EU referendum outcome, although he did mention that he believes the full risk premium for the event is not yet priced into UK markets. The Pound finished the session back toward the lows of the day, but now trading in the 1.45 handle against the greenback with the event risk out of the way, the Pound is certainly in a much stronger place than one would have expected last week.”
Key Quotes
“The Quarterly Inflation Report adopted a dovish tone, downgrading near term growth and inflation projections, suggesting that inflation would be marginally above the 2% target in two years’ time. This is on the basis of a much flatter yield curve now compared to the last inflation report in November, combined with a 3.5% fall in the trade weighted value of sterling.
Although the release was initially met with Sterling selling, the subsequent press conference from Governor Mark Carney, sent the Pound back higher towards pre-event levels. Carney adopted a more upbeat tone on the economy than one would have expected. He also confirmed the entire MPC believe the next rate move is more likely to be up than down, going as far as to say the market’s current path of pricing implies the BOE will overshoot its inflation target, as not enough tightening is priced in.
Governor Carney did not comment on the EU referendum outcome, although he did mention that he believes the full risk premium for the event is not yet priced into UK markets. The Pound finished the session back toward the lows of the day, but now trading in the 1.45 handle against the greenback with the event risk out of the way, the Pound is certainly in a much stronger place than one would have expected last week.”