BOE Stuck on Hold as Brexit Delay Kicks in: Decision Day Guide
The BOE’s meeting is the first since Prime Minister Theresa May secured an extension to the U.K.’s Brexit deadline until October.
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The Bank of England looks set to take a cautious approach to interest-rate changes during the U.K.’s Brexit delay, with the continued uncertainty outweighing the evidence of resilience in the economy.
Officials will vote to hold the benchmark interest rate at 0.75 percent when they announce their decision at noon in London Thursday, according to all economists surveyed by Bloomberg. Still, analysts are on the lookout for evidence of a hawkish tilt in the minutes of the meeting, with some seeing one official pushing for an immediate hike.
That stance would contrast with the U.S. Federal Reserve, which left rates unchanged on Wednesday and didn’t give a clear signal as to whether the next move would be an increase or a cut.
The BOE’s meeting is the first since Prime Minister Theresa May secured an extension to the U.K.’s Brexit deadline until October, meaning that, after years of conditioning forecasts on a smooth exit in March, officials will have to update their predictions to reflect the delay.
Growth Outlook
It’s likely they will just push back their expectations for an orderly departure, and, with economic data having largely surprised to the upside in the first quarter, analysts expect the BOE to raise their forecasts for 2019 growth and inflation.
Rate Bets
Even so, most economists and traders don’t expect the the six-month delay to Brexit to give officials enough of a window to move. While bets on a hike picked up slightly during April, investors aren’t fully pricing in a move until at least late-2020.
That would mean Governor Mark Carney won’t hike rates again before he leaves. The government last week began the search for a successor to take over when Carney steps down in January.
Slowing Inflation
Aside from Brexit, a softer inflation picture may also strengthen arguments for caution. Price growth was below the BOE’s 2 percent target for the whole of the first quarter, giving more breathing space.
Possibility of Dissent
Still, there remains a chance of a hawkish surprise at the meeting. JPMorgan Chase & Co. says that markets are ignoring the risk that policy makers lay the ground for future moves this week, while one quarter of economists surveyed by Bloomberg see one official voting for an immediate hike. Such a move would mark the first dissenting vote in almost a year.
Employment Strength
Michael Saunders, the committee’s most hawkish member, is the obvious candidate to lead the charge for higher rates. While he said earlier this year that he didn’t see a rush until Brexit uncertainty lifts, the delay and increasingly impressive labor market data may be enough to convince him to resume his push.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Andrew Atkinson
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