BoE to stay put again in July, meeting minutes awaited

Economists polled for the July forecast report on the Bank of England's interest rate decision concur that the announcement on Thursday will be a non-event, as the central bank is not expected to modify its monetary policy in any way. Attention will rather be focused on the Minutes from the meeting, due out later this month, which might contain more information on the future moves.

Nicky Ong, like the rest of the contributing analysts believes that "July’s Bank of England policy meeting is likely to offer little in terms of alteration to interest rates or asset purchases," although he adds that the accompanying statement might offer some "clarity after weeks of contradiction," if it is released at all.

In his recent speeches Mark Carney has been sending confusing signals to the markets, adopting a hawkish tone which pushed the pound up further. Other analysts, such as Adam Narczewski, suggest that the contradictory messages will continue, and that rather the monetary policy meeting Minutes should provide a greater insight into when the rates could start rising. Therefore investors will focus on the publication of the Minutes in two weeks time to see "if there is some dissident vote among members, vouching for a sooner rate hike," as Valeria Bednarik predicts.

Gerry Davies, who points to the impressive improvement in the UK economic data, believes that it's "only a matter of time before one or more MPC members break rank and call for a small rate hike" and suggests that the first 25bp increase should come in the first quarter of 2015, "although a move around November 2014 wouldn’t come as a huge shock."

Therefore, according to Alberto Muñoz, after the interest rate announcement this Thursday "don't expect too much volatility in GBP/USD, which will probably remain trading inside the 1.7080 - 1.7180 range."

The BoE will announce its monetary policy decision on July 10 at 11:00 GMT. Below you will find the full forecasts of the contributing market experts.

Gerry Davies - FXBeat Editor:

"While it’s almost a caste-iron certainty the Old Lady will be the first of the world’s major central banks to hike interest rates, IT IS a caste-iron certainty that the Bank will decide to hold rates/QE steady this time round.

The Bank’s Governor Mark Carney has done a good job of keeping this troops in line, having the members of the MPC all pretty much singing from the same hymn sheet regarding monetary policy.

That said, given the impressive economic growth being experienced by the UK, the accelerating decline in the  jobless rate and the burgeoning housing market, it has to be only a matter of time before one or more MPC members break rank and call for a small rate hike.

While we don’t see any member breaking rank this time round, it wouldn’t be surprising to see it occurring in the next couple of months.

Our best guess is that the Bank will eventually hike rates 25 bps during Q1 2015, although a move around November 2014 wouldn’t come as a huge shock.

Cable has enjoyed a good run of late, largely underpinned by the prospect of higher UK interest rates.  Around the current 1.7200, there must be a very good chance that cable has fully discounted the first 25bps rate hike.

And with recent strong US jobs data leading some to speculate the Fed could hike earlier than previously thought, we could see some improvement in the dollar and cable struggle to maintain its buoyancy."

Nicky Ong - Co-Founder of Traders Corner:

"July’s Bank of England policy meeting is likely to offer little in terms of alteration to interest rates or asset purchases; instead focus is firmly on the accompanying statement as investors search for clarity after weeks of contradiction.
 
Mark Carney has been criticised for driving the Pound higher with his hawkish comments regarding interest rate prospects when inflation appears to be falling.
 
There is strong demand for the central bank to provide some detail on how it proposes to manage a resurgent economy and potential housing bubble without stoking the fire beneath the Pound when price pressures are easing.
 
It is no secret that rising house prices and the consequent higher levels of debt to income is a real risk to the U.K economy, but raising rates is deemed as the ‘last line of defence’ from one BOE official.
 
I expect the accompanying statement to provide the main source of interest as I can’t see any reason for the BOE to adjust interest rates or asset purchases at this moment in time."

Steve Ruffley - Chief Market Strategist at InterTrader.com:

"Very little is expected from Mark Carney at this point with regards to the asset purchase and the headline rate. With his recent comments and turn around on house prices and rates, his somewhat hawkish tone surprised the markets. These comments,  which I thought personally where the most sensible thing he has said directly to market in some time, has lead to the speculation that rates indeed are set to rise. If you have listen to my commentary I’ve been saying this for a long time.
 
The pound is up nearly 4% against the dollar so good news for holiday makers. The bad news is that anyone that has debt on credit cards, loans or their mortgages are in for a rough ride. The hike will come swift and often and the 4 million people in the UK that are ‘unreasonable’ debt are in trouble.
 
This is what happens when you build you house on sand, on top of other houses. The UK has noone to blame apart from themselves. If you use houses as investments they will rise over time. If you treat houses like investments there will be profit taking and a correction. Look out for negative equity and the repossession figure over the next 12 month, they are surely to rise.
 
I expect both the 0.5% headline and asset purchase to remain again unchanged."

Adam Narczewski - Financial Analyst at X-Trade Brokers, XTB:

"In my opinion, Mark Carney will keep sending confusing signals to the markets on the next BoE monetary policy meeting. From one side, he will be stating that he is getting investors ready for interest rate hikes, from the other side trying not to make the Pound appreciate too much. Carney is trying no to allow a high GBP/USD rate, unsuccessfully so far. The UK economy is strong enough that the markets expect and interest hike soon, despite what BoE representatives say officially. Till now, investors were able to rate the economy well, despite the BoE's mistakes."

Yohay Elam - Analyst at Forex Crunch:

 "No change is expected from the BOE. While Carney and his colleagues have been outspoken about the timing of a rate hike, first bringing expectations forward before confusing markets, this is not coming in the next months. Any hints could come in the MPC Meeting Minutes which are the real show. If we see that one or more members already voted for a hike in July, that would certainly be pound supportive."

Bill Hubard - Chief Economist at Markets.com:

"The potential for the FPC to impose tighter credit supply conditions in the economy had long been seen as a factor which might result in the MPC leaving interest rates ‘lower for longer’ than otherwise. In the event though, the FPCs actions last week - which the MPC will now formally take into account in their decision next week - merely took out protection against upside risks to mortgage debt materializing, rather than dampening the central outlook for the housing/ mortgage markets or the broader economy. Thus, they should not have dampened MPC members’ central projections for interest rates either.

Overall, with slack in the economy likely having narrowed further of late, the time to start raising rates has likely drawn a little closer. Yet, while the BoE’s primary focus is the medium-term inflation outlook, the more benign near-term prospects may provide a more comfortable backdrop against which to leave rates ‘on hold’ for some members. And with none of the BoE ostensibly being in an immediate hurry to raise rates, the August Inflation Report next month may provide a better vehicle through which to assess the need for rate rises.
 
Indeed, signs of imminent votes for rate rises at the August meeting may be required to justify the market pricing in almost a full 25 bps rate rise by the BoE by their November meeting.
 
The sharply contrasting signals from strong employment growth yet soft inflation and even softer real wage growth, together with the MPC’s mixed messages and membership changes means we can no longer present the view that the front-end of the sterling curve is 'well-anchored'. Nevertheless, we see interesting opportunities."

Alistair Cotton - Senior Analyst at Currencies Direct:

"No changes to policy are expected at the BoE meeting on Thursday, but the market is looking for clarification on future policy after mixed messages from the MPC in recent weeks.  The market is fixated on when rates might begin to rise, which the BoE thinks is misguided. The MPC thinks it is the pace of subsequent rate rises that is important and it is this point they will try to communicate to the markets over the next few months."

Alberto Muñoz, Ph.D. - Forex Analyst at FXStreet:

"Once again I would not expect any change neither in interest rates nor forward guidance in July meeting. At the current moment the Bank of England is sending contradictory messages on interest rates to the market, creating some uncertainty as everybody expect a rate hike during 2015 but nobody knows exactly when, especially as inflation surprised last month falling to 1.5%, thus remaining below the Bank of England’s target for six months in a row. Add to this that a stronger pound is acting as an unofficial interest rate rise which could hit UK's growth and that there's a slowdown in mortgage approvals, despite the rise in housing prices, making more difficult to forecast where interest rates will be in a year. After the news, don't expect too much volatility in GBPUSD, which will probably remain trading inside the 1.7080 - 1.7180 range."

Valeria Bednarik - Chief Analyst with FXStreet:

"As usual, I expect the BOE meeting to be a non-event, with no changes in rates or the Assets Purchase Program to be announced this time. Minutes for the meeting will be released two weeks later, and market attention will focus again if there is some disident vote among members, vouching for a sooner rate hike. If that's the case, Pound will likely advance to fresh year highs against the greenback, on speculation the Bank will move rates higher before the year end."