The Bank of England’s policy team meets tomorrow to decide whether or not it will be raising rates, and while it doesn’t appear likely, it would take little vote-switching for the hike to come true.
At the last meeting, 4 of the 9 voting members came out in support of a rate hike. That result sent the pound way higher, as it hinted we could see two more members switch tomorrow, and a rate hike occur.
The big problem facing the BoE is that, while inflation is a clear problem (4% in January) so is growth (0.6% contraction in Q4). A rate hike could add to the later problem, without solving the food and energy price driven former.
That’s why Morgan Stanley doesn’t think a rate hike is in the cards, yet.
From Morgan Stanley’s Melanie Baker and Cath Sleeman:
Our central case is still that the MPC will not actually raise rates until August since we expect the incoming activity data to disappoint (see Exhibit), though we still see a relatively high probability of a first rise in May. The main reason why we expect a rate rise at all from the BoE, despite our weak GDP growth outlook, is that we also expect inflation expectations and wage growth to rise further this year.
Note Morgan Stanley’s GDP projection for the country; pretty ugly stuff.
Photo: Morgan Stanley