BoE: Rate hike is getting closer - BBH

Bank of England’s last week decision to keep rates on hold was based on a 5-3 vote and many observers think since this is two more dissents than previously, a rate hike is getting closer, suggests the analysis team at BBH.  

Key Quotes

“Carney set the record straight earlier today, and sterling fell half a cent in response.”

“The Bank of England Governor was clear.  As he was a year ago, Carney remains concerned about the economic consequences of Brexit.  Domestic inflation, he argues, is subdued, and wage growth is anemic.  He signaled it would take the next several months to see if there are offsets to the weaker consumption, whether wages recover, and the economic response to the tighter financial conditions.  He noted the great degree of uncertainty as Brexit negotiations begin.”

“The takeaway is that the Bank of England is most likely not going to raise rates anytime soon. The market responded immediately and began unwinding the tightening bets.  The implied interest rate on the December short-sterling futures contract fell six basis points.  This is the largest decline in four months.  The 10-year Gilt yield is off more than three basis points, which pushes the yield again below 1.0%.”

“Sterling had poked above $1.28 briefly yesterday but stopped a couple of ticks shy of last week's high.  It finished the North American session poorly yesterday and is at one-week lows today (a little below $1.2670).  We peg resistance now near $1.2720.  There is a modest option (~GBP335 mln) struck at $1.27 that expires today.”