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BoE: The hands of the bank are tied - Nordea Markets

Today, the Bank of England announced it kept monetary policy unchanged, as expected. According to Morten Lund, Research Analyst at Nordea Markets, explains that for markets and the Bank of England, its all about Brexit, and the real economy only play a minor part.

Key Quotes: 

“As expected by both Nordea and consensus, the MPC voted unanimously (9-0) to keep the Bank Rate at 0.75%. The Committee reiterated that the broader economic outlook and monetary policy going forward depend significantly on the outcome of Brexit - the response to which will not be automatic and could go in either direction depending on the effects on demand, supply and the exchange rate.”

“The MPC was, however, once again hawkish on the labour market and the underlying domestic cost pressure, as the latest job report revealed the highest regular average weekly earnings in almost ten years (3.3% y/y from August to October). The higher-than-expected wage growth along with low productivity are key reasons why the MPC believes that underlying inflation pressure is building, and why we think that the Bank of England would be warming up to a rate hike if not for Brexit. Until then, the hands of the Bank of England are tied.”

“The market reaction has been very muted with the GBP and the UK yield curve trading marginally lower. Investors currently price in a 60% probability of a rate hike ultimo 2019. In our view, the muted market reaction illustrates that it is all about Brexit at the moment whereas the Bank of England and the real economy only play a minor part and will continue to do so in the coming months.”
 

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