BoE Preview: Expect a 25bps cut to Bank Rate - TDS

Research Team at TDS, suggests that the Bank of England’s MPC meets for the first time since the EU Referendum today.

Key Quotes

"Bank Rate: We expect a 25bps cut to Bank Rate, but think that risks of a 50bps cut are higher than no cut at all.

The Vote: While a unanimous 9-0 vote to cut 25bps is possible, look for a dissents. Dissents in favour of a 50bps cut could offer a strong hint of more easing to come, and would likely have a greater market impact than dissents toward unchanged rates, which might simply suggest policy delays until August.

Summary & Minutes: This is where the MPC will have freedom to outline its policy options going forward. Uncertainty over the timing (and indeed the creativity) of monetary easing remains elevated, and with Governor Carney’s emphasis on transparency, the text should provide some “soft” forward guidance. We look for an indication that 0.25% is not the floor for Bank Rate, and a strong signal of a broader easing package to come in August. We also want to see the MPC acknowledge that the depreciation in GBP will be a one-off inflation shock, allowing them to ease aggressively in the face of stronger prices.

As markets have not fully priced in Bank Rate eventually moving to zero, if our base case materialises it is likely to be interpreted as dovish by markets and could push cable to fresh multi-decade lows below 1.28 and 10yr gilt yields to new lows of 0.65%.”