The news on this was out during UK time Monday
Just posting up more detail:
The Bank of England's MPC minutes in September were hawkish, but the subsequent comments from former doves Mark Carney and Jan Vlieghe appear to have sealed the deal.
- We think the bank is clearly signalling it intends to raise rates in November.
- We now expect a 25bp rise in that meeting, followed by another in May 2018, taking the bank rate to 0.75%.
- Previously, we had expected no change in rates this year or next. There could be some bad prints in the survey data between now and November. But news on growth and inflation looks likely, if anything, to pose upside risks to the bank's forecasts, as it puts together the November Inflation Report.
- The bank's messaging also suggests it wants to do more than just 'one and done'. Ahead of the September meeting, the market was pricing in just two rate rises by 2020. All of the committee members thought this was too few. If momentum in the economy continues through the early part of next year, then we think a majority will vote for a rise in May.
- That said, there are more risks to this view: our FX team has revised its GBP-USD forecast up to 1.35 for end-2017 and 1.26 for end-2018 (from 1.20 in both years)
- If the stronger pound bears down on the MPC's inflation projections, then there may be less of a case to tighten again.
Our view on the UK economic outlook has not changed.
- We remain concerned about consumer demand, we see above-target inflation as largely driven by the fall in sterling, and we are unpersuaded that wage growth is picking up.
- Annualised regular pay growth and unit wage growth have ticked a bit higher, but they have also done so in the past, only to disappoint further out. This being the case, we do not see the November rise marking the start of a conventional tightening cycle.
- We do not think two rate rises will crash the UK economy. But if we are right and inflation pressures fall back as the impact of sterling weakness recedes, then the risk is that the tightening comes to be seen as a little premature. This could even introduce the possibility of rates being cut further out.
