Are the dynamics of Brexit negotiations about to change?
www.macrothoughts.co.uk
Hi,
You will know from last week's report ('You may find it surprising, but Macro Thoughts warns against complacency over lower yields'), that I forecast UK CPI of 2.9%, following my correct forecast for July of 2.6%. Both beat consensus. In that report I also forecast a more hawkish BOE, and warned against complacency over lower rates, despite anticipating lower yields for the past 6 months. US and UK yields have rallied over 20bp this week.
This week’s Bank of England meeting has left markets in no doubt there is a prospect of a rate increase in the coming months, leaving many to reconsider their forecasts for rate hike expectations. The Bank of England said interest rates are likely to rise in the coming months in order to curb inflation, which it now expects to exceed 3%. Sonia markets have moved from pricing only a 20% chance of a rate increase in February, to almost 100% and 2 year yields rallied to 0.38% from 0.145%.
The MPC should know they have a limited opportunity to raise rates, before their window of opportunity closes, and markets should expect just one increase, not a series.
Macro Thoughts, September 8, 2017, ‘In May, Macro Thoughts forecast UK CPI to be close to peaking, and since then inflation has fallen slightly, (from 2.9% to 2.6%). Next week, CPI data for August will be released and may be higher than 2.8% expectations, (potentially 2.9%)’.
Previous Macro Thoughts reports can be read on www.macrothoughts.co.uk
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