BOE: Expect an 8-1 vote to hike, with Cunliffe the stand-out dove – Morgan Stanley


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Analysts at Morgan Stanley offer detailed insights on what to expect at today’s trio of key Bank of England (BOE) events, including the monetary policy statement, minutes of the meeting and quarterly inflation report (QIR).

Key Quotes:

“We see the MPC as having a hawkish bias: This reflects: i) The May Inflation Report forecast, which assumes that tightening - three hikes over three years - is required to hit the inflation target; ii) The assessment that there is virtually no slack left, given the judgement that full employment is at 4.25%, which is marginally above the current rate; and iii) New upside pressures on inflation, with GBP about 2% weaker and a large pay increase for public sector workers announced since the May Inflation Report, which we estimate will push pay up by 0.4pp and take headline pay above 3% 3M/Y in 2H18. 

The May decision to stay on hold was partly justified on the grounds that although 1Q weakness looked like it was a transient weather-related effect, the MPC saw a case for waiting for more data to make sure. Since then we have had an upgrade to 1Q growth and a rebound in 2Q growth, which we now see as tracking at the MPC's forecast of 0.4%Q, and likely running slightly above potential. 

Mixed signals on future action: We expect the MPC to estimate that the neutral rate in the UK at the moment is in the 2.5-2.75% range, slightly above Governor Carney's 2015 estimate. We see this as a hawkish signal on future action,

We expect an 8-1 vote to hike, with Cunliffe the stand-out dove.”

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