PREVIEW: BoE November Rate Decision, Minutes Release & Quarterly Inflation Report (QIR) 1200GMT/0700CDT, Press
Conference at 1230GMT/0730CDT
• Current BoE Base Rate: 0.25%, Asset Purchase Facility: GBP 435bln.
• The MPC is expected to raise its base rate by 25bps to 0.5% with markets believing that recent data is enough to
support calls for lift-off.
• This meeting sees the release of the decision itself, the vote split and the minutes, alongside the central bank’s
Quarterly Inflation Report, with the press conference scheduled for 1230GMT/0730CDT.
BACKGROUND
At the previous announcement in September, the MPC stoked expectations of a rate hike at the upcoming meeting with the
accompanying minutes stating that “…some withdrawal of monetary stimulus is likely to be appropriate over the coming
months in order to return inflation sustainability to target.”.
Since then, markets have continued to price in expectations for a 25bps hike this week, with market pricing now standing
at 85-95% and tightening forecast by 47/65 surveyed by Reuters. In terms of the vote split, consensus is looking for a 6-3
vote (8/22 surveyed by Reuters), although this is far from an outright majority, with 6/22 looking for 7-2 and other forecasts
ranging from 9-0 to 4-5 (unchanged).
In terms of the potential dissenters, Barclays (looking for 7-2) believe that Ramsden will likely be a dissenter in lieu of his recent
appearance at the Treasury Select Committee, with the bank undecided on whether Cunliffe or Tenreyro will join him in his dissent.
(discussed in more detail below).
DEVELOPMENTS SINCE THE PREVIOUS MEETING
GDP
Expectations for a rate hike at this week’s meeting were cemented by last week’s Q3 GDP release which printed at 0.4%
Q/Q (Exp. 0.3%) and 1.5% Y/Y (Exp. 1.4%) showing balanced growth across all sectors and in-fitting with the MPC’s August
projections. In terms of projections in the QIR, expectations are for little change this time round, although 2017 growth could be
nudged slightly higher given last week’s numbers; a view backed by BAML.
Inflation:
Y/Y CPI is currently running at 3.0% (Sep), slightly ahead of the August projections, which looked for inflation to peak in
October at around the 3% level (was changed to rise above 3% in October in the September minutes) and the Bank’s 2.8% Y/Y
forecast for September. With inflation at current levels, most expect the majority of the MPC to vote for a hike with TD
Ameritrade also highlighting that inflationary pressures have come less from exchange-rate pass through and more from domestic
factors than expected. The (slightly ahead of expectation) inflation data could be factored into near-term projections,
according to HSBC. However, RBC note that a potential higher path for rates over the 2-3yr timeframe could weigh on
inflation expectations further out in the forecast horizon.
Labour market:
The unemployment rate is currently running at 4.3% (was expected to trough at around 4.4%) and as such, RBC highlight that this
combined with low productivity could suggest that slack has eroded at a quicker rate than anticipated in August; a view that
was also referenced in the BoE’s September minutes. Core and headline weekly earnings grew slightly faster than expected
in August (2.2% 3m/y vs Exp. 2.1%), however, remain subdued by historical levels and the squeeze on real wages continues,
according to Barclays. ING suggest that markets may not see wage growth take-off to the extent the Bank is forecasting due
to ongoing Brexit uncertainty, weaker demand and cost pressures relating to the softer GBP. Therefore, look out any potential
adjustments on this front.
MPC rhetoric:
Since the September meeting, governor Carney has reiterated that a rate hike might be appropriate over the coming months.
Given mounting market speculation of a 25bps hike this time out, he is viewed as favouring “lift-off” as he would have mostly likely
used his platform to tip the decision back towards a balance if he was unconvinced on hiking; something which he has not done.
Elsewhere, Saunders and McCafferty are almost nailed-on to maintain their calls for a hike whilst Vlieghe followed up last month’s
meeting by stating that the “appropriate time for hike might be as early as the coming months”. Broadbent has been largely
inconspicuous since July, but markets broadly see him favouring consensus, while Haldane could vote for a hike after flirting with
the idea back in June. In terms of potential dissenters, Ramsden, has been ear-marked as a candidate after recently stating that he
wasn't in the MPC majority foreseeing a hike in the coming months. Tenreyro, who also appeared at the TSC, noted caution over
premature rate hikes, although Barclays ultimately expect her to fall in line with consensus. Finally, question marks also surround
Cunliffe after he noted that “we are not seeing sustained signs of domestic inflation pressure” and that he “does not want to
anticipate the November rate decision”.
