BoE will likely retain its hiking bias - TDS

Analysts at TD Securities suggest that the BoE’s MPC will likely retain its hiking bias, which is seen as increasingly implausible by markets, and will be largely ignored.

• “Our base case sees the MPC continuing to include the reference to rate hikes "at a gradual pace and to a limited extent," although we do see a non-negligible risk of that phrase being dropped, given the growing odds of a disorderly Brexit and the slowdown we've seen in both domestic and global growth. Even so, we think that any half-hearted pushback against current market pricing will be largely ignored by markets, given the extreme level of skepticism that the BoE will be raising rates anytime soon. Even before the election of PM Johnson and his harder tone on Brexit, we had already removed any BoE rate hikes from our forecast profile through to at least the end of 2020.
• The BoE already shifted its nowcast at the June meeting to look for flat GDP growth in Q2, and could go as far as forecasting a negative print (indeed Vlieghe has said he expects this). The sharp turn lower in the June PMIs (plus what we expect to be a further decline in the July manufacturing PMI published on the morning of the BoE's decision) will leave the BoE concerned about Q3 growth as well. Add to that continuing trade tensions and a clear dovish shift from both the Fed and ECB, and there should be plenty of ammunition for market participants to grasp onto if they're looking for an excuse to price in further BoE easing.
• The MPC has also lost its hawkish tail for the time being, with neither Haldane nor Saunders angsting for rate hikes right away. Haldane said recently that the case for holding rates until the road becomes clearer is strong, while Saunders said that the economy right now is clearly not overheating. Neither one sounds all that close to cutting rates either, but they both seem to be a bit further away from voting for rate hikes than they have been in the past.”