BoE Preview: Hiking Cycle but Not Yet
- H1 UK GDP growth has disappointed by enough to leave live concerns about how weak the economy currently is, which should encourage the MPC to leave Bank rate on hold in August. I expect two dissenters, with the new member joining the majority.
- Falling unemployment is indicating a persistent and significant supply shock, which is inherently inflationary and hawkish. I continue to expect the MPC to start raising Bank rate in May-18, with risks skewed earlier.
- Most members may expect to hike sooner, but there is no need to commit. By clarifying that a rate increase would probably be the start of a slow cycle, the curve could steepen, strengthening Sterling, and easing the policy trade-off. That would buy time without risking a loss of credibility by failing to hike on schedule.
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