BoE Preview: Setting up for a May rate hike - TDS

Analysts at TDS expect the Bank of England to keep policy on hold today, and paint a relatively neutral tone of the economy.

Key Quotes

“It is too soon for them to start pivoting communication toward our expectations of a May rate hike.”

“The accompanying Inflation Report will present new economic forecasts. We expect very small upward revisions to near-term growth and inflation forecasts, but weaker potential output growth from the MPC's annual supply stock-take (and thus weaker GDP growth). The recent appreciation of the exchange rate will help offset higher oil prices this year, but could weigh on inflation slightly in 2019 and 2020.”

“FX: Our base case for this MPC suggests GBP is likely to remain without a major near-term directional pull. We expect EURGBP to remain tethered to recent ranges while cable should stay more a function of the USD. However, our expectation for a rate hike in May, suggests now is the time to build into downside structures in EURGBP.”

“Rates: With BoE meeting expected to be less eventful, focus should turn to the BoE's APF reinvestment strategy. We favour performance of low coupon bonds vs. high coupon bonds in the "7-15y" bucket of the gilt curve.”