BoE: Markets scaled back expectations of further easing in November - Commerzbank

Peter Dixon, analyst at Commerzbank, notes that expectations of a November rate hike by the Bank of England have decreased. According to him, the probability of a further 15 bps of monetary easing, which would take Bank Rate to 0.1%, is priced at around 30% compared to 40% a week ago and 70% in mid-August.

Key Quotes

“The recent strong run of UK data has prompted markets to scale back expectations of further easing at the November MPC meeting. Our estimates suggest that the probability of a further 15 bps of monetary easing, which would take Bank Rate to 0.1%, is priced at around 30% compared to 40% a week ago and 70% in mid-August.”

“In recent weeks, there has been mounting concern that further monetary easing is likely to prove counterproductive, with even prime minister Theresa May suggesting last week that loose monetary policy has had some bad side effects.”

“Deputy governor Ben Broadbent countered some of these criticisms in a speech this week, arguing that central banks were merely “accommodating a long, drawn-out decline in the neutral real rate of interest.” Whilst he acknowledged that monetary policy does have limits, he was obliged to point out that the BoE has not yet run out of ammunition if more easing is required. Mr Broadbent also highlighted that the impact of the EU referendum on the UK economy was yet to unfold although the economic slowdown “looks so far to have been more moderate than we feared.”

“This is not (yet) an argument against a November rate cut but it does suggest that the market assessment is broadly right.”