- MarketPulse - https://www.marketpulse.com -

Time For BoE to Give Much Needed Clarity on Rates

“Super Thursday” is upon us again as the Bank of England treats us to a flurry of information with investors having to digest the interest rate decision, meeting minutes, the quarterly inflation report and a speech from the Governor himself, Mark Carney. There may currently be some confusion in the markets around the timing of the first rate hike from the BoE, but after today’s events things should hopefully be much clearer.

The problem is that while these things are intended to provide more clarity and transparency, what tends to happen is the indecision within the central bank sends mixed messages and can leave the markets more confused than before. People can’t currently seem to make up their mind on what year the first rate hike will come, let alone the month, which is something the central bank really needs to address today.

I am still of the belief that the BoE will raise interest rates in the first half of next year, shortly after the Federal Reserve, as unemployment is low and the economy is growing well, albeit at a slowing pace. The economy does not warrant the life support that the BoE currently has it on and very gradual rises in interest rates will do far less harm now than a few in quick succession further down the road once inflation starts to pick up. Of course low inflation is a concern and raising interest rates will most likely continue to apply downward pressure to it, but most of it is being caused by lower energy and food prices which will not last.

Until now, Ian McCafferty has been alone in voting for a rate hike but there are two other hawkish members that may be tempted to join him in the coming months. Martin Weale – who last voted for a hike with McCafferty in December 2014 – and Kristin Forbes are both thought to be considering voting for a hike which would put the voting a 6-3 and make future meetings very interesting. Under these circumstances, the minutes would be key in telling us if any other policy makes were tempted to take the plunge, with Carney himself potentially coming around to the idea.

Inflation and growth forecasts are expected to be revised lower today, which shouldn’t come as a surprise given the growing number of headwinds in the global economy, softening U.K. data and deflationary pressures coming from abroad. This is the problem with being in the BoEs position, it’s not only its own tightening that applies deflationary pressures to the economy, easing from other central banks also exports deflation to the U.K.. That said, I don’t expect this to deter the BoE in the coming months, instead I expect it to focus on the medium term outlook, the temporary nature of the low inflation and the risks to hiking too late.

Economic Calendar [1]

For a look at all of today’s economic events, check out our economic calendar [2].

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [6]

Senior Market Analyst, UK & EMEA at OANDA [7]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

Latest posts by Craig Erlam (see all [6])