PREVIEW: BoE December Rate Decision & Minutes Release 1200GMT/0600CST
• All surveyed analysts expect the Bank of England to keep monetary policy unchanged, with the bank rate at 0.5% and the Asset Purchase Facility at GBP 375bln
• Headline UK CPI printed at -0.1% for October, still well below the BoE’s mandated 2% target
• The accompanying minutes release is expected to once again show an 8-1 vote split in favour of keeping rates on hold
The most recent UK inflation reading revealed that Y/Y CPI (-0.1%) to remain in deflationary territory 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 is expected by many given the ongoing subdued levels of inflation in the UK, mixed data of late and global growth prospects. Commentators from The Times newspaper in the UK describe the BoE as `piggy in the middle` given the divergence between the Fed and the ECB, whereby the latter cut their deposit rate last week and with the former widely expected to hike rates next week, seeing the US central bank diverge with Europe for the first time since 1994.
Analysts at Nordea describing the decision as a `non-event`. That said, if a member of the MPC were to join McCafferty in voting for a rate hike, the two notable candidates would be Weale or Forbes with Weale having a more hawkish stance historically and Forbes also suggesting in recent months that she has hawkish tendencies. Also worth noting is comments from BoE’s Carney over the summer, whereby he noted that the decision of when to increase interest rates will come into "sharper relief" by the end of this year. An even more outside bet would be for Haldane to vote for a rate cut given his dovish stance and the fact that inflation remains at significantly low levels.
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 easing by the ECB as well as the continued softness in energy prices and as such further deflationary pressures.
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 prove relatively unreactive given this is largely expected, 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.