Friday, November 6, 2015

U.K. November MPC : Dovish than expectation

Bank of England Bank Rate: 0.5% (unchanged);  /    Vote: 8-1
Consensus: 0.5% (unchanged);                              /    Vote: 7-2

Asset Purchase Facility (APF): £375bn (unchanged);         Vote: 9-0
Barclays and consensus: £375bn (unchanged);                   Vote: 9-0

The bold is why market evaluate this MPC as dovish. Market expected one more member arguing interest rate hike, but there wasn't.

via Barclays Capital,
The BoE kept its policy stance unchanged and the balance of voting remained at 8 to 1 in favour of the status quo, as we expected. The minutes of the meeting highlighted diverging views among Committee members as well as a downside bias, noting risks to the UK from emerging market economies, even when accounting for expected weak EM growth and softer-than-expected activity indicators, as well as concern over unit labour costs rising more slowly than needed for a hike and a weaker inflation profile.

However, EM risks seem to decrease somewhat significantly after FED's fund rate hike and U.K. labor costs will rise next year as BOE members expect. So, these aspects couldn't underpin the expectation that BOE is hard to raise policy rate until next year.

So, bond yield rally may be ended shortly while sterling could continue to weaken somewhat further with strong US dollar.

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