skip to main content
Close Icon We use cookies to improve your website experience.  To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy.  By continuing to use the website, you consent to our use of cookies.
Global Search Configuration

BoE POLICY OUTLOOK Policy is not the firm hold for ca 2 years as many/most thought prior to the Jun 15 meeting. Three dissenters (the most since May 2011) voted for an immediate 25 bp rate hike, instead of just one that was widely seen. Confirmation, if any was needed, that the emergency/lower bound 0.25% Bank rate won't be lowered, even on a hard Brexit. McCafferty and Saunders are likely to cast a similar vote in Aug, i.e the next convene, and with it being a 'super-meeting' (QIR, verdict and minutes) it could be nip and tuck for hawkish guidance, even if the vote is 5-2 for steady rates (fellow hawk Forbes has cast her final vote). The reaction was to immediately steepen what was a pancaked yield curve (STIRS dumped 12 ticks at worse) and the 10-year Gilt yield added 15 bp on a cumulative basis since the surprise, though was far too low (sub-1%) pre-release. These dynamics should warrant a further steepening in the curve to more familiar territory, ie 2/10 spread to ca 130 bps,

The macro rationale was somewhat more positive vs recent releases. Q1 GDP is expected to be revised up to 0.3% (looked suspect at the time) with further improvement in Q2, to 0.4% q/q. The MPC cited export surveys/investment intentions running above average, and acknowledged 'surprise' about low wages given historic norms. More inflation to come is a gimme, over 3% (already 2.9%) and a view that continued employment growth could suggest spare capacity and inflation tolerance is being eroded. In the prev QIR/mins combo (May), the policy makers said that tighter policy (vs current flat/shallow curve implies) was needed, but there was no explicit view on the timing. The Gov said Brexit didn't tie the MPC's hands. Our take: we have been hawks for arguably too long (vs market) and maintain a 'smooth' exit will transmit to quicker rate increases, and well before the 1st rate increase (per market, Q4 2019). Much remains dependent on inflation and confidence during the Brexit process and a transitory deal (to avoid the dreaded cliff edge) could allow the BoE leeway to start the slow normalisation process away from effective ZIRP. with CPI still well above target, albeit may have peaked in Q1 2018.

BANK RATE 0.25%, LAST MOVE -25 BP AUG 2016, NEXT MEET AUG 3 2017

Recommended Articles

  • IGM Credit, IGM FX and Rates

    China Insight: More Small Banks in Trouble as Re-leveraging Underway

    By Tim Cheung 19 Nov 2019

    The health of China's smaller banks has come under pressure as Yichuan Rural Commercial Bank and Yingkou Coastal bank are said to have suffered bank runs in recent weeks amid fears over poor management and liquidity issues. Earlier this year, a rare government takeover of Baoshang Bank and a state rescue of Jinzhou Bank and Hengfeng Bank raised concerns about the underlying health of hundreds of small banks in China. Admittedly, China has entered another round of re-leveraging, albeit a softer one this time. With the fundamental issue of macro leverage unsolved, we expect China's debt-to-GDP ratio, currently in the 290-300% area, to reach 320% by 2025 (chart 1).  

    Topics Industry News

  • IGM Credit, IGM FX and Rates

    The Context 11.18.19

    18 Nov 2019

    Inside this week’s edition of The Context, Financial Intelligence thought leaders discuss: Brl/Mxn Corrects Lower, But Still See Mxn Underperformance in Medium-term Due to Mexico's challenging GDP growth outlook, the reduction of the real rate and lingering risk of credit rating downgrades, we still see scope for Mxn underperformance in the medium-term. Whilst the Brl rally has paused, and for good reason, the arguments we presented for Brazilian economic outperformance remain. Euro Corp Comment: Issuance Slows But it Remains a Seller’s Market It was another active week for the European corporate bond market where another EUR7.455bn printed in the single currency courtesy of eleven issuers (13 tranches). Whilst being a decent total, it did however mark a considerable slowdown from the jumbo EUR11.25bn that hit the tape the week prior. What remained constant though was that there remained plenty of cash directed toward new corporate offerings… The CAD Week - Bias is Neutral to Bearish We get some major releases this week out of Canada, with manufacturing sales, CPI and retail sales being released on Tue, Wed and Fri respectively, but ultimately the most influential topic for the BoC is the ongoing trade war and its effect on domestic industry. Read more from The Context and subscribe to have it delivered to your inbox each week!

    Topics Industry News

  • FX & rates insights, IGM FX and Rates

    IGM FX Case Study: Banking and Financial Service Provider

    13 Nov 2019

    Our main sponsor (referred to throughout as ‘MP’), a Senior VP, Sales FX used IGM’s service 12 years prior to moving to BFSP. His initial hesitancy on sourcing economic data from an external data provider was alleviated once he sampled IGM as an intelligence source. Working in a fast-paced environment such as foreign exchange, requires concise, relevant content and IGM’s services were a perfect fit for our main sponsor and his team for day to-day requirements. IGM’s daily information alerts allowed team members to keep abreast of global news in what MP termed, ‘short and sharp content, which can be read 15 minutes prior to the start of a working day, whilst providing a good understanding of the current market’. Read more...

    Topics Industry News

;

Any questions? Speak to a specialist

Would you like to request sample data or analysis from Informa Financial Intelligence? 

See how our tailored solutions can help you gain a competitive advantage: