Via Reuters
I came across this piece on Reuters discussing the next moves for the Bank of England. It has been such a long drawn out saga and UK data has been playing second fiddle to the politics of the withdrawal process I thought it would be helpful to bring our minds back to where the Bank of England actually is at the moment.
The current lay of the land
The Brexit deadline has now been moved to October 31. This leaves a 6 month gap for the Bank of England to have some room to manoeuvre rates. 75 of the economist polled by Reuters do not expect any change in the Bank of England interest rates this year. Around 6 predict a rate rise before October 31 and the median forecast is for a rise in the first quarter of next year.
The piece made the point that the UK is going to have increased inflationary pressures and has scope to hike rates. The last CPI data release from the UK came in on expectations with the m/m reading at 0.2% and the y/y reading was a drop at 1.9% vs 2.0% expected and the core reading was 1.8% y/y vs 1.9% expected. This doesn't seem to be creating any immediate pressure on the BOE, so a sit and wait mandate seems logical to my mind.
The article continued to name a number of factors that mean it could be difficult for the Bank of England to put a rate hike in:
- Conservative leadership challenge
- National election
- Second referendum
So, in short, the article reminds us what we already know - that the UK is still in the quagmire of Brexit. The rally in the GBP during yesterday's European session marked the optimism that is still there for a positive Brexit outcome. The Reuters article had the BOE increasing it growth and inflation targets on Thursday and think the market is being too complacent on a market hike by the end of 2019. However, at the moment, any extended move in the GBP is going to be based on substantive news. Until then it looks like selling the rallies is the preferred option.