The Bank of England turns hawkish making May rate hike probable

The Bank of England turned hawkish in February MPC meeting presenting slightly lower inflation forecast compared to last November issue. The hawkish turn of the Bank of England is now making the rate increase in May more probable despite the Bank of England Governor Carney voicing Brexit related uncertainty once again.

Changes to key projections between November 2017 and February 2018 Inflation Report

Source: The Bank of England February Inflation Report

The key element of the Bank of England February Monetary Policy Committee meeting minutes is point 36. saying: “Immediately prior to this MPC meeting, slightly more than three 25 basis point increases in Bank Rate had been priced in over the next three years, more than the 15-day average on which the February Inflation Report projections had been conditioned. That was itself somewhat steeper than the conditioning path used in the November Report, which had implied two 25 basis point increases over three years. Although market pricing implied little expectation of a rise in Bank Rate at the MPC’s current meeting, a likelihood of around 50% was placed on a 25 basis point increase at the May meeting.”

While journalists at the Inflation Report press conference were trying hard to dig in for confirmation of what Carney described as “somewhat sooner and to somewhat greater degree" interest rate path in future, no actual answer was given.

The FX markets understood the message and Sterling rose, breaking on the upside from downward sloping trend channel against the US Dollar.

GBP/USD 1-hour chart