Heteronomics 28 July 2017 BoE preview: hiking cycle but not yet H1 GDP growth has disappointed by enough to leave live concerns about how weak • Philip Rush the economy currently is, which should encourage the MPC to leave Bank rate on +44 (0)7515 730675 hold in August. I expect two dissenters, with the new member joining the majority. +44 (0)2037 534656 • Falling unemployment is indicating a persistent and significant supply shock,
[email protected] which is inherently inflationary and hawkish. I continue to expect the MPC to start raising Bank rate in May-18, with risks skewed earlier. • Most members may expect to hike sooner, but there is no need to commit. By clarifying that a rate increase would probably be the start of a slow cycle, the curve could steepen, strengthening Sterling, and easing the policy trade-off. That would buy time without risking a loss of credibility by failing to hike on schedule. At 12:00 BST on 3 August, the BoE will publish its latest Inflation Report along with its decision and minutes to the meeting. Since its last report on 11 May, there have been lots of surprise falls, including in unemployment, wage growth, GDP tracking estimates, Sterling, and the oil price (Figure 1). Naturally, the implications of those things are more varied, especially amid differently dated releases. At the BoE’s 15 June meeting, it turned surprisingly hawkish, with Ian McCafferty and Michael Saunders joining Kristin Forbes in voting for an immediate rate hike. The unemployment rate had fallen below the BoE’s forecast while inflation was overshooting, with the outlook stronger still amid Sterling devaluation.