In reaction to today’s Bank of England (BoE) Monetary Policy Committee (MPC) meeting, Timothy Graf, head of macro strategy EMEA at State Street Global Markets; and Barry McAndrew, fixed income senior portfolio manager at State Street Global Advisors, EMEA, offer their views.
Graf comments, “Today’s hike and messaging from the MPC was more or less what markets expected heading into this pivotal policy meeting. The BoE continues to deliver rate normalisation, but further hikes will be very much ‘wait-and-see’ propositions. By the time the next quarterly inflation report is released in November, the BOE might have a clearer idea of what Brexit looks like and whether inflation remains above target. Even so, with so many questions around the health and potential of the UK economy, the deliberative tone of the MPC’s messaging is likely to persist. With rates now out of the way as a market talking point for the next few months, focus is likely to return to the ever-changing nature of Brexit. We suspect sterling will likely become even more correlated to headline risk.”
McAndrew comments, "With its second hike, the BoE has now removed around half of the accommodation they provided in the immediate aftermath of the Brexit referendum. With growth performing better than expected since then and running at close to, if not above potential, the committee sees little danger from some minor accommodation removal. With today’s hike, the committee will certainly be hoping a hard Brexit can be avoided. They will be watching negotiations closely from the sidelines given guidance of roughly a once-a-year pace of hikes.”
