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Little prospect of a BoE near-term rate hike - ING

FXStreet (Łódź) - James Knightley from ING comments on the BoE MPC October meeting minutes which showed that two members voted for a 25bp rate rise.

Key quotes

"However, the other 7 MPC members saw no need for action, largely due to the low CPI environment and the weaker Eurozone economy bringing increased risks to the UK growth outlook."

"The minutes also suggested that most members also felt that 'a premature tightening in monetary policy might leave the economy vulnerable to shocks'."

"Given none of these factors are likely to disappear imminently it does suggest that there is little prospect of a near-term rate hike with financial markets pushing their expectations out to 3Q15."

"While our February rate hike view is looking pretty unlikely right now, we have doubts that the BoE will be able to leave policy unchanged for the best part of the next twelve months."

"Indeed, we have a lot of sympathy with the views expressed by Weale and McCafferty. They pointed back to 2011 when CPI was above 5% and the BoE 'looked through' the first round impacts of energy price and FX moves."

"They feel that the BoE should do the same this time given the underlying strength in the UK economy while the BoE should also perhaps be more concerned about the prospect of a rapid increase in wages given the pace that labour market slack is being eaten up."

"Indeed, their key argument is that 'it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them'"

"We think that there is a good chance that wages turn more quickly than many expect with this month’s 3% increase in the national minimum wage a potential catalyst for broader wage increases in the economy."

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