The most recent inflation data from the UK revealed that Y/Y CPI (0.0%) is still at a relatively low level and with this in mind it is highly unlikely that
the BoE will chose to hike rates at this meeting. Therefore, it will likely be the case that the accompanying minutes release will be the main source of investor focus.
In terms of the vote split itself, analyst estimates are expecting to see an 8-1 vote split with McCafferty set to remain the lone dissenter
. This will most likely be the case due to subdued levels of inflation in the UK, disappointing data (Sept services PMI printed its lowest reading since
April 2013) and global growth prospects which could also lead the Fed to delay lifting rates. A combination of these factors has also led various
investment banks to push back expectations of BoE rate lift-off with BNP Paribas and BofAML not expecting the bank to lift rates until May 2016.
That said, there are some outside bets for some of the more hawkish leaning members to join McCafferty in calling for rate lift-off. The two notable
candidates would be Weale or Forbes
with Weale last month saying that interest rates need to be increased “relatively soon” and Forbes saying that rates will need to rise in the short term in
order to make sure that inflation does not overshoot the 2% inflation goal. An even more outside bet would be for Haldane to vote for a rate cut, an idea floated by Morgan Stanley ahead of the
previous meeting with Haldane since suggesting there are significant downside risks to inflation and economic growth.
Aside from the vote split, as always, the comments from the minutes release could cause a bulk of any potential market reaction.
The central bank’s view on recent global economic events will likely be a key focus given suggestions of potential further easing by the ECB and BoJ with
the market now also downplaying the likelihood of a Fed hike in 2015 following the recent monthly US jobs report.
Given how hawkish some of the recent rhetoric from the BoE has been in its reports, with the central bank expecting a marked pick-up in inflation
towards the year-end, it will be interesting to see whether the central bank sticks to this outlook or takes a more cautious approach as shared by
other major global central banks.
MARKET REACTION
Given that the rate decision itself is so widely expected to remain unchanged, focus will be on the vote split and accompanying comments.If as expected the vote split remains at 8-1 then the market could see an unwind of some outside hawkish positions, however, if anyone decides to join McCafferty in voting for a hike then this would be largely a surprise to the market and could lead to GBP strength, steepening of the UK curve and downside for equities. Thereafter,
attention will be on the overall tone of the minutes release and whether the central bank will continue to downplay recent global economic events or
re-evaluate their stance in lieu of them which has proven to be a factor in the consideration of other central banks
. Should the latter be the case then this could lead participants to further push back their expectations of lift-off by the BoE and subsequently see
weakness in GBP, upside in UK equities and a flattening of the UK curve.