BoE: Its Super Thursday in the UK – BMO CM

Jennifer Lee, Senior Economist at BMO Capital Markets, suggests that today it’s the Super Thursdayin UK; that is, when the Bank of England wraps up its monetary policy meeting, releases its decision, the Minutes to the meeting, and the Quarterly Inflation Report, all in one shot (7 am ET), followed by a press conference presided over by Governor Carney half an hour later.

Key Quotes

“Similar to the ECB, no changes to the Bank Rate are expected (currently at a record low 0.25%), nor to the Term Funding Scheme and Corporate Bond Purchase Scheme (scheduled to run until February 2018), while the Asset Purchase Facility should be maintained at £435 bln. The market will focus squarely on everything else, including how the vote will go down. At the last meeting (March 15th), Kristin Forbes was the sole dissenter, voting for a rate hike, with the view that inflation was rising quickly and would remain above target for at least three years. She may have some company this time around. Michael Saunders recently expressed his opinion that inflation could be over 3% and that GDP could also exceed 2% over the course of this year and in 2018; and, that even with a “modest rise in rates”, there would still be “considerable stimulus… in place”.”

“The economic forecasts will also be scrutinized. After slashing 2017 GDP estimates last August (after the referendum) from 2.2% to 0.8%, the central bank has reversed course, steadily raising the growth forecast, most recently to 2.0%, while keeping 2018 and 2019 at just over 1½%. The data haven’t been terribly impressive of late, so no meaningful changes are expected. But inflation may be upgraded as Q1 CPI exceeded the BoE’s official forecast (in fact, February and March hit a near 3½-year high of 2.3%). Although the GBP has strengthened versus the EUR, we expect the currency to be caught by tough Brexit negotiations. In fact, even though they won’t officially begin until June, Brussels is already taking a very tough stance, such as pegging the EU exit bill at a whopping €100 bln (payable upfront), an amount that is twice earlier estimates and that the U.K. has flatly refused to pay.”

“All in, we look for no changes to the current stimulus program, and for the Governor to stay very cautious during the press conference.”