In this briefing:
1. BoE: Extracting the Policy Option Value of Delays
- The BoE MPC was unanimous in voting for no policy changes in Feb-19, as widely expected. Hawkish pressures remain in the Bank’s forecast, but the policy option value of a delay is high enough to tolerate them until after EU withdrawal.
- Downgrades to the Bank’s demand forecasts were surprisingly significant given the PMIs bias to overreact to uncertainty. Allaying those concerns is likely to be too difficult to do in time for a May-19 rate hike.
- I now expect the BoE to hike Bank rate to 1.0% in Aug-19, assuming a smooth exit from the EU in the interim. The data should seem better than the Bank fears by then, to the extent that the disinflationary effect of GBP appreciation is offset.
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