TD Securities economists discuss the Bank of England’s interest rate decision and its implications for GBP/USD.
Hardline (10%): 100 basis point hike
“With the EPG ending in April, the MPC is concerned about the likely more persistent inflation profile, opting to shift to a tightening policy stance as soon as possible. The message is to pick up the pace, rather than add more to terminal but little guidance remains beyond this meeting GBP/USD at 1.1581.”
Base case (60%): Cautious 75 basis point hike
“The MPC decides 8-1 to raise the Bank Rate by 75 bps, but the tone remains somewhat cautious, with an emphasis on uncertainty. The projections will be disconcerting, since the market prices for the yield curve are already out of phase. The Monetary Policy Committee will probably avoid giving any hints on neutral or terminal policy rates, but that could come in December or later. GBP/USD at 1.1466.”
Moderate (30%): Increase of 50 basis points
“With a still weak growth outlook and fiscal policy likely to add to the downside, the Monetary Policy Committee errs on the side of caution (unlike its recent strategy) and opts for a lower rate hike. The inflation forecast for the third year it is increased, and may even show negative inflation at that time. GBP/USD at 1.1380.”
Source: Fx Street
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