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BOE Preview: Carney Does the Splits – TD Securities

Ahead of the Bank of England’s (BOE) key monetary policy meeting results, on Thursday, TD Securities came out with its analysis of how the event could affect the markets while also expecting 25 basis points (bps) cut to the benchmark interest rate.

Key quotes

We look for the BoE to cut Bank Rate to 0.50% at Carney's last meeting as Governor, but likely in a split 5-4 or 6-3 vote.

While Q3 GDP came in line with the BoE's 0.4% q/q forecast, Q4 is on track to disappoint. The BoE had forecast a 0.2% q/q gain in the November MPR, which was downgraded to 0.1% in the minutes from the December meeting. After the disappointing November GDP print, GDP is now on track to come in flat or slightly negative for the quarter.

The BoE is likely to downgrade 2020 GDP and CPI, and with nearly two full months until the next MPC meeting, risk-reward supports reinforcing the expected recovery in growth and inflation, as Carney suggested in his last policy speech.

GBP may remain more sensitive to broader sentiment and ongoing Brexit concerns than BoE policy for now, but our base case suggests some moderate downside risks for this week's MPC decision.

The front end is currently pricing around 13bps in cuts for this week's BoE meeting.

A full 25bps cut is only being priced around June. Indeed, the front end has seen some push back since last week's extreme pricing.

This is probably driven by the profit-taking activity in the short sterling curve. Following extreme price action in the Gilt curve, we are biased towards paying GBP 1y1y vs US/EUR.

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