BoE heading for a May hike and another in November likely - Danske Bank

Analysts from Danske Bank, believe that the Bank of England is heading for a May interst rate hike and they also believe another hike in November is likely, which is more than the one BoE hike forecast by consensus.

Key Quotes: 

“The Bank of England maintained monetary policy unchanged but two BoE members (Ian McCafferty and Michael Saunders) voted for an immediate rate hike (vote count 7-2 for an unchanged Bank Rate). While Mark Carney has already revealed that the BoE no longer wants to pre-commit to a hike, this was as close to a pre-commitment as we could get.”

“While the positive contribution to CPI inflation from GBP depreciation is fading, the BoE thinks domestic cost pressure is increasing, as slack has been more or less absorbed. In order to avoid a more persistent CPI inflation overshoot, it is appropriate to raise rates. The BoE still expects growth to remain above potential GDP growth over the forecast horizon.”

“With respect to Brexit, the Bank of England did not alter its communication despite the agreement on transition. Based on Mark Carney’s comments at a press conference after the February meeting, the BoE had already pencilled in a high expectation of a  Brexit transition agreement so it does not really alter the outlook for the BoE.

“We still believe the BoE is heading for a May hike and we also believe another hike in November is likely, which is more than the one BoE hike forecast by consensus. As we argued back in February after the last meeting, the BoE seems to have launched a regular hiking cycle and this meeting has not changed our view. Markets have priced in approximately 42bp hikes this year, so we are more hawkish than both other houses and market pricing.”