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More Policy Divergence: BOE On Hold, Signals ‘Limited’ Tightening

In case it isn't clear enough, this just further underscores the policy divergence narrative.

The conditions for a hike in May have been met so why wait?

That’s what MUFG analyst Lee Hardman asked ahead of the March BoE meeting. Well fast forward to today and we know “why wait?”.

The U.K. economy all but flatlined in Q1 (the worst quarter for growth since 2012) and subsequent data have betrayed more weakness. Weather was a factor.

While inflation has cooled, tight labor markets suggest domestically-generated price pressures could rise, giving the hawks something to hang their hats on.

The bottom line appears to be that the BoE is in the same position as the ECB after a soft patch for eurozone data in Q1 – they need to take breath and wait for more information.

“Problem is, the data has been so uniformly poor this year that it will take a massive turnaround for the central bank to feel comfortable hiking rates,” Bloomberg’s Richard Jones wrote this morning. So August is in focus with May completely off the table.

Well the decision is in: it’s 7-2.

  • BANK OF ENGLAND VOTES 7-2 TO MAINTAIN BENCHMARK INTEREST RATE

These are notable:

  • BOE SEES INFLATION COOLING FASTER TO REACH 2% GOAL IN 2 YEARS
  • BOE SAYS ONLY LIMITED TIGHTENING NEEDED IN COMING YEARS

And here you go:

  • U.K. MONEY MARKET PRICES OUT BANK OF ENGLAND RATE HIKE FOR 2018

So, the pound is retreating:

GBPUSD

And gilt yields are falling:

GILT

In case it isn’t clear enough, this just further underscores the policy divergence narrative as the Fed remains on track while everyone else gets cold feet amid lackluster incoming data.


 

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3 comments on “More Policy Divergence: BOE On Hold, Signals ‘Limited’ Tightening

  1. Frantzeskos Petrou

    Darth Carney holds still yet for another time

  2. Pingback: Forget The Bombs, Buy The Stocks - Financial Consultant

  3. Pingback: Meet Me In Sintra And Mind The Oil Slick: Full Week Ahead Preview – readly.info

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