BoE: hazardous journey to Feb-19 hike
- The BoE hiked Bank rate to 0.75%, as expected. Further increases depend on Brexit developments, where progress to the stand-still transition would be broadly consistent with a Feb-19 rate hike, in my view.- The Withdrawal Treaty uncertainty should resolve in Q4, with the outcome and reaction to it crucial to the policy response. Another fudged solution should keep hawkish economic trends intact without GBP delivering the monetary tightening.
- Bank rate may eventually need to overshoot neutral, but that could come before the BoE’s long-run modal estimate of 2.25%. The effective neutral rate is lower.
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