With markets pricing in an 86% chance of a rate-cut (compared to 11% pre-Brexit) and hopes high for some form of increased QE, Bank of England’s Carney had highly dovish expectations to live up to today. Cable and FTSE were both rallying into the decision (with Gilt yields slightly higher). Given that there has been little post-Brexit data to show any effects, Carney appears to have decided to wait…
- *BOE VOTES 9-0 TO KEEP ASSET-PURCHASE FACILITY AT 375B POUNDS
- *BOE VOTES 8-1 TO KEEP RATE AT 0.5%; VLIEGHE WANTED 25BPS CUT
- *BOE SAYS MOST OFFICIALS EXPECT POLICY LOOSENING IN AUGUST
And offeres hope for an August cut – after more data is available.
The pound is spiking on this disappointment – up 2.5%.
Stocks and bonds are both lower…
- *U.K. TWO-YEAR GILT EXTENDS DROP; YIELD UP 4 BPS TO 0.15%
- *FTSE 100 PARES GAIN AS BOE MAINTAINS BENCHMARK INTEREST RATE
So considering expectations:
DID THE MPC CUT RATES, BY HOW MUCH?
The probability of a 25bp BOE rate cut today is about 78%, money-market pricing shows.
A slim majority of analysts surveyed by Bloomberg expect a cut as soon as today; 23 see rates on hold, 25 see a 25bps decrease while 2 see a 40bps cut, another 2 expect a 45bps cut, and 2 see a cut to zero
There’s been little hard data to show how the U.K.’s decision to leave the EU has affected the economy but consensus is that it will weaken, especially if negotiations become drawn out
And Governor Carney warned there’s a prospect of a material slowing of the economy and his stance at the Bank of Canada was to act early to prevent a deeper downturn
HOW SPLIT WERE THE VOTES?
Given heightened expectations of a rate cut in short- sterling markets, but mixed views about whether the case for easing is proven yet, all eyes will be on the split — whether the bank cuts today or not
The bank publishes new quarterly forecasts for growth and inflation next month; some policy makers may prefer to wait for that analysis before taking action
Carney has expressed caution about rate cuts given the likely impact on bank margins and there’s a broader discussion about what easing measures central banks should prioritize in the future; this could be reflected in this week’s vote
WHAT ABOUT QE?
The majority of economists, 40 out of 43, expect the Bank to leave its asset purchase facility unchanged at GBP375b
It’s likely though that the U.K.’s rate-setters discussed what other easing options it has at its disposal, including a relaunch of its credit easing program
The MPC Statement is a big disappointment:
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target and in a way that helps to sustain growth and employment. At its meeting ending on 13 July 2016, the MPC voted by a majority of 8-1 to maintain Bank Rate at 0.5%, with one member voting for a cut in Bank Rate to 0.25%. The Committee voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion. Committee members made initial assessments of the impact of the vote to leave the European Union on demand, supply and the exchange rate. In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August. The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round.
This was a big disappointment, despite leaving the door open for August.
via http://ift.tt/29Egdni Tyler Durden