BoE: Change in expectations - Rabobank

Jane Foley, Senior FX Strategist at Rabobank, explains that September marked a sea-change in expectations regarding BoE policy. 

Key Quotes

“As recently as this summer, many forecasters were anticipating that interest rates would be on hold until 2019.  Currently the market is around 80% priced for a 25bps rate hike on November 2 and the latest Bloomberg survey suggests that more than three quarters of analysts now expect the BoE to raise rates at its November meeting, up from around one in five in September.  This sharp swing in expectations is almost entirely the result of the step up in hawkish rhetoric proffered by the MPC rather than a response to UK economic data.  Indeed, while UK CPI inflation has edged up to 3%, activity series are showing signs of weakening.”

“The implication is that for many forecasters, the expectations of a rate rise on November 2 is not necessarily consistent with what they think the Bank should do, but rather what the MPC now looks likely to do.  To protect its credibility, we do now expect that the Bank will hike rates in November.  However, due to weakness in recent economic data, we anticipate that the Bank will not be able to follow on with another move for some time.  The dovish hike scenario suggests that upside potential for the pound on a policy move in November is likely to be limited.”