Morten Lund, an analyst at Nordea Markets, estimates today's messages from the Bank of England's (BoE) Monetary Policy Committee (MPC) as mixed.
- The MPC reiterated its “gradual and limited” rate hike rhetoric, and that the future rate path was conditioned on a relatively smooth Brexit transition to an average of a range of outcomes. It was also reiterated that the response on different Brexit outcomes depends on the effects on demand, supply and the exchange rate.
- The overall message was mixed. On the dovish side, inflation was revised down in 2019 and 2020 reflecting lower expected retail energy prices, while inflation in 2021/2022 was close to unchanged despite higher excess demand (+1% in 2022). The latter confused some markets participants, but Governor Carney and MPC member Broadbent clarified this in the following press conference saying that the oil futures curve was the primary reason behind this forecast.
- On the contrary hawkish side, GDP growth was revised up due to better data in Q1. Thus, the first quarter appears to have been boosted by higher retail sales and stock building (higher inventory). Therefore, GDP is now expected to have increased 0.5% q/q in Q1 (February inflation report: 0.2%) and 1.5% y/y for 2019 (February inflation report: 1.2%). This would, however, still be slightly below potential. A key reason for that is business investments, which the BoE forecast to fall by 0.25% per quarter.
- We, however, still consider both these estimates a bit too high. Thus, we expect the contributions from private consumption and net trade contributions to be slightly lower than what the BoE has penciled in.
- We expect the BoE to sit tight for the rest of the year. Instead, we see the next hike in May 2020, when we believe the Brexit uncertainty has diminished. This effectively also means that Governor Mark Carney will not deliver a final rate hike, as he is set to leave his position in January 2020.