BoE joins the dove herd – Nordea Markets

Morten Lund, an analyst at Nordea Markets, notes that the Bank of England (BoE) stroke a more dovish tone at the June meeting, as growth has softened, and the perceived risk of a no-deal has increased.

• “In line with both our view and consensus, the Bank of England (BoE) kept both the Bank Rate and the bond purchase programme unchanged. Although there was some speculation before the meeting whether MPC members Michael Saunders (most likely) or Andy Haldane could dissent due to recent high pay growth numbers, the decision was unanimous (9-0) to keep the policy rate on hold at 0.75%.
• The overall message was, in our opinion, clearly to the dovish side.
• Adding to the dovish message, the MPC noted that the global risk sentiment had weakened and the perceived risk of a no-deal had increased, as reflected by the weak sterling.
• We, however, find it difficult to argue for any rate hikes anytime soon as growth is set to slow in Q2, inflation has downside risks (see model below), G10 central banks have shifted in a dovish direction and the fear of a no-deal Brexit is very much alive and kicking.
• At the other side of the coin, we also do not find a rate cut likely (our AI model does not as well, see below). Basically, we think the BoE’s hands are tied due to Brexit and with inflation currently at target, a cut does not seem warranted in the coming months. We would only expect a cut in the case of a no-deal event.”