BOE Hawk May Disrupt Year of Brexit Unanimity on Interest Rates

(Bloomberg) -- The Bank of England is widely expected to keep interest rates unchanged when it meets next week, although some analysts see the risk of a hawkish surprise.

While all 24 economists surveyed by Bloomberg predict policy makers will maintain rates at 0.75 percent on Thursday, six see one official voting for an immediate hike. Such a move would be a disruption of the BOE’s previously unanimous position of waiting for Brexit developments to play out before resuming their hiking path and mark the first dissenting vote in almost a year.

BOE Hawk May Disrupt Year of Brexit Unanimity on Interest Rates

The May meeting is the BOE’s first since Prime Minister Theresa May secured an extension to the U.K.’s Brexit deadline until October, meaning officials will have to update their assumptions when they compile their latest forecasts. Still, it’s likely they will just push back their expectations for an orderly departure, and economists expect the BOE to raise their forecasts for 2019 growth and inflation.

Michael Saunders, who has previously led calls for higher rates, is seen as the most likely candidate to break from the pack. While he said earlier this year that he didn’t see a rush to raise interest rates until the uncertainty of Brexit lifts, the recent delay, and further signs of tightness in the labor market, may be enough to convince him to resume his push for a hike.

Still, it could be a while before a majority of policy makers are convinced of the need for action. The National Institute of Economic and Social Research this week pushed back its forecast for an increase until next August, while markets don’t see a move until even later than that.

What Bloomberg Economists Say

“We expect the central bank to adopt a more hawkish tone aimed at preparing financial markets for the possibility of a 2019 hike. We expect the MPC to vote 8-1 in favor of keeping rates on hold, and suspect Michael Saunders will vote for higher rates.”

Dan Hanson, economist
Click here to view the research.

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