BoE Preview: The MPC is expected to hike Bank Rate by 50bps – TDS

Analysts at TD Securities (TDS) offered a brief preview of the upcoming Bank of England monetary policy meeting, scheduled on August 4. The UK central bank is expected to hike interest rates by 50 bps, though the British pound might continue to be influenced by the USD price dynamics.

Key Quotes:

“We expect the MPC to hike Bank Rate by 50bps, with likely 3-4 members preferring a 25bps hike, and a message that cautions against extrapolating 50bps hikes into the future. Early details of active Gilt sales should be announced, but no decision yet made.”

“External factors more likely to be relevant for GBP given caution on extrapolating more aggressive tightening. Cable more of a function of broad USD dynamics and US data surprises going forward. We see GBP outperformance persisting vs EUR given structural challenges facing the bloc.”

“Details on QT are likely to remain a key driver for rates. The "announcement effect" argues for cheapening of the 10y ASW from their current rich levels, at least as we head into the meeting. We still favour being long in GBP 1y1y vs. EUR 1y1y on back of ongoing underperformance of GBP on xmkts basis.”