PREVIEW: BoE June Rate Decision and Minutes Release 1200BST/0600CST
- Current BoE Base Rate: 0.25%, Asset Purchase Target: GBP 435bln of government securities and GBP 10bln of corporate debt.
- Analysts expect the BoE to remain on hold this meeting with rhetoric from the minutes expected to have a neutral tone.
- This meeting sees the release of the decision itself, the vote split and the minutes, but no Quarterly Inflation Report scheduled this month
In what is anticipated to be a relatively uneventful meeting this month, the Bank of England are expected to keep rates on hold at 0.25%. In terms of the focus, participants will be watching the vote split (expected to remain 7-1 with Forbes the sole dissenter in what will be her last meeting at the bank) and the minutes release for any indication as to the central bank’s bias.
At the previous meeting, the MPC drew focus on the yield curve suggesting there is some dysfunction between market pricing and the bank’s expectations. However, Goldman Sachs expects the BoE to remain tight-lipped this time around, and instead withhold further judgement until the update economic projections in the August QIR. Ultimately, this meeting is not expected to provide fireworks with the BoE in wait-and-see mode to see if their projections from the May report materialise.
A key focus for the UK economy has been the political uncertainty emanating from UK PM May’s failed attempt to gain a Parliamentary majority ahead of upcoming Brexit negotiations (which were originally scheduled to begin on Monday 19th June). However, it is unlikely that the Bank will weigh-in on the debate after refraining from issuing a statement last week like they did in the wake of last year’s referendum result. That said, one of the key takeaways from the May QIR presser was that the bank had not modelled a reaction to a disorderly Brexit process. Given the events of the past week, it’ll be interesting to see if this remains the case.
In terms of recent data, the last UK CPI report showed Y/Y CPI running at 2.9% and Y/Y core at 2.6%; both markedly above the BoE’s 2% target. However, as we have reportedly heard from various members of the bank, the MPC will be likely to restate that they will look through some of the GBP-inspired inflation effects. Although, the lacklustre wage data on Wednesday (UK Average Earnings 3M/YY 2.10% vs. Exp. 2.40%, Prev, 2.40%, Rev. 2.30%) may eventually force the hand of the BoE at some stage given the implications of inflation and earnings data on real wage growth.
Note, that BoE Governor Carney is due to deliver a Mansion House speech at 2100BST on the same day as the policy announcement. However, given purdah, the Governor will be unable to comment on Monetary policy (Purdah period runs until midnight Thursday).
It is worth noting that the June MPC will consist of eight members after the departure of Charlotte Hogg. Market participants are expecting the vacancies left by Hogg and Forbes to be addressed, with some speculating that an announcement could be forthcoming alongside the BoE’s Financial Stability Report on 27 June.
And with regards to the FSR, it is also worth keeping in mind that last July the BoE said the counter-cyclical capital buffer that applies to banks would be held at 0% until at least the June 2017 FSR meeting, and therefore, some anticipate it may be restored back to 0.50% later this month.
With analysts having a relatively broad consensus in expecting no action from the BoE and the vote split to remain at 7-1, little is expected in the way of a market reaction particularly given that there is no QIR this time around. That said, if the Bank of England raises any concerns about the climbing inflation rate and are less tolerant of this trend, this could lead to appreciation of GBP, downside in the FTSE and a flattening of the curve. The converse reaction could be seen if the MPC are overtly dovish but this is unlikely at this stage.