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BoE Preview: Don’t Mistake Boring For Hawkish – Credit Agricole

CACIB economists are looking for unchanged voting split with Ian McCafferty still dissenting and voting for a hike. There should be no change in the assessment of the economy and the inflation outlook from the November inflation report (IR).

Indeed, while the retail sales disappointed and the manufacturing suffered from the persistent global trade slowdown, other sectors of the economy seemed to be holding up well. Headline inflation is negative but unemployment rate has dropped to 5.3% and average wage growth remains robust. Given that the November IR has emphasized past currency appreciation as a key driver of the current low inflation, any comments on the recent GBP weakness should attract considerable attention. We doubt, however, that the MPC will sound all clear on the FX appreciation front. Indeed, while the GBP TWI is down almost 2.5% from its November highs, the currency is still at one of its highest levels in the last two years.

Unchanged and boring outcome from today’s policy meeting should not be taken to imply that the MPC would be turning more hawkish very soon. We suspect that the BoE will want to see clear evidence that the headline and core inflation has bounced off the lows before they consider removing accommodation. We still expect the BoE to start hiking rates in Q3 2016 and this makes us constructive on GBP vs. EUR, JPY, CHF as well as the G10 commodity currencies.

The outlook for GBP/USD could remain more challenging in the near term, however, because we expect USD to do well more broadly at the start and the early stages of the Fed tightening cycle. We further suspect that the fact that the stocks of mining companies are overrepresented in FTSE relative to other major stock indices should continue to weigh on GBP against the background of persistent downside risks for global commodity prices.

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