BoE: Does the odds now favour a hawkish take-away? – Nordea Markets

According to analysts at Nordea Markets, Bank of England was too aggressively priced ahead of the May meeting and that conclusion is substantially less obvious now that most of the implied probability of a hike on Thursday has been priced out of the market after Carneys comments and a weak GDP number for Q1.

Key Quotes

“The overwhelming broad-based consensus is now that Bank of England will stay on hold and that maximum 2 out of the 9 MPC members will vote for a hike (Saunders & McCafferty).”

“We warn against expecting a dovish hold from BoE on Thursday, as I) Mark Carney has a history of miscommunication, II) Mark Carney does not necessarily represent the median-vote in MPC and III) labour market figures have not disappointed since the last meeting (growth and consumer prices have disappointed substantially)”

“Hence, we see a risk of a more hawkish hold than the general market perception, as more than 2 of the MPC members may decide to dissent from the on hold decision. Furthermore, the inflation projection in the Inflation Report may not be revised down in the long-end, as Bank of England primarily cites increasing wage pressures as the underlying reason for the long-term +2% inflation projection.”

“Since the last meeting, the unemployment has dropped below their current NAIRU-projection of 4.25%, so we are not convinced that they will sound particularly long-term dovish, only short-term dovish. So while there are still a lot of reasons to be sceptical around the case for hikes in UK, we don’t necessarily think that this will be reflected fully in the Inflation Report on Thursday and therefore the GBP may get a little breather.”