BoE: Cautious but could still opt to raise rates in 2019 – ING

James Smith, developed markets economist at ING, suggests that today, in its March meeting, the BoE has kept its cards close to its chest when it comes to the prospect of rate rises, simply saying that further tightening may be required.

Key Quotes

“Importantly though, we think it’s too early to completely rule out a rate hike this year - although of course, this depends almost solely on Brexit.”

“The Bank’s forecast of excess demand at the tail-end of its forecast period implies that more tightening could be needed than currently priced into markets.”

“You could reasonably argue that with the Federal Reserve and the ECB seemingly on pause for the foreseeable future, it’s hard to see the Bank of England going against the grain. But barring a more severe global downturn in growth, we suspect policymakers will be more inclined to play ‘catch up’. For this reason, we’ve loosely pencilled in a rate hike for November.”

“For the Bank of England outlook, a lot depends on how long the Article 50 negotiating period is extended.”

“On balance though, we suspect 'no deal' would cause a substantial hit to confidence (in addition to significant disruption to supply chains), which makes it much more likely the Bank would decide to cut interest rates in this scenario.”