BoE: No change in guard – Rabobank

In view of Jane Foley, Senior FX Strategist at Rabobank, the messages from the Bank of England in December did not stray far from that provided in November. 

Key Quotes 

“Having hiked rates last month, the MPC voted unanimously to keep policy on hold and repeated the message that it was in no rush to move again.  The Bank reported that “domestically, some activity indicators suggest GDP growth in Q4 might be slightly softer than in Q3”.  This cautious statement was most likely written ahead of the release of stronger than expected UK November retail sales data.  That said, the MPC made clear that further rate hikes were on the radar and that “further modest increases in Bank Rate would be warranted over the next few years”.”

“Just ahead of the December policy meeting, the stronger than expected print for UK November CPI inflation at 3.1% y/y had provided some support for the pound. The headline rate should start to edge lower in the coming months as the impact of last year’s GBP drop falls out of the year-on-year calculations.  However, the impact of domestically generated inflation is expected to keep CPI inflation supported and potentially above the Bank’s 2.0% target through the forecast period.  If CPI inflation remains sticky through H1, it is feasible that the MPC will bring forward the next rate hike.  That said, we don’t see the next move as coming before the end of 2018.  In the first part of next year, it is likely to be politics rather than monetary policy that will provide the most incentive for the pound.”