Citi: The BoE
Today’s MPC minutes revealed two things - both of which we argued in our preview- First, the Committee do not believe there is emerging evidence of second round effects yet, although they are becoming more concerned this ‘lull’ may not last for much longer. Second, there was a shift in their tone - it was more hawkish - relative to the July MPR. We remain of the view that the MPC will likely hike Bank Rate by 25bps in Q4, most likely in the November MPR round. A more hawkish tone — The MPC minutes read more hawkish than the July MPR. Why? Because they now see material risks to headline CPI continuing to surprise on the upside and seep into core components via indirect effects. Energy prices are everything — Everything rests on what happens in the Strait. If there is a resolution, then this hawkish narrative will unravel and the Committee will hold. Tighter financial conditions are buying the MPC time — Some members on the MPC acknowledged that tighter financial conditions have allowed the MPC to play for time, by holding for longer. Overall, we think the MPC are bracing us for a hike in Q4 — Our base case is a hike in November, but they left the door open for a hike in December ins
Today’s MPC minutes revealed two things - both of which we argued in our preview- First, the Committee do not believe there is emerging evidence of second round effects yet, although they are becoming more concerned this ‘lull’ may not last for much longer. Second, there was a shift in their tone - it was more hawkish - relative to the July MPR. We remain of the view that the MPC will likely hike Bank Rate by 25bps in Q4, most likely in the November MPR round. A more hawkish tone — The MPC minutes read more hawkish than the July MPR.
Why? Because they now see material risks to headline CPI continuing to surprise on the upside and seep into core components via indirect effects. Energy prices are everything — Everything rests on what happens in the Strait. If there is a resolution, then this hawkish narrative will unravel and the Committee will hold.
Tighter financial conditions are buying the MPC time — Some members on the MPC acknowledged that tighter financial conditions have allowed the MPC to play for time, by holding for longer. Overall, we think the MPC are bracing us for a hike in Q4 — Our base case is a hike in November, but they left the door open for a hike in December instead. Holding on, but not for long. In our BoE preview, we argued that the MPC will be on hold this month, but that the rapidly changing picture on energy prices and tighter financial conditions would catapult the MPC into action before the end of this calendar year.
Our reading from today’s MPC minutes is exactly in line with that.