Yesterday morning in Europe, GBP/USD made another attempt to get back on to a 1.40 ‘big figure’ but fell short by just a few pips before then losing more than a full cent against a strongly recovering US Dollar to a low in the mid-1.38’s. Despite the weakness in the ‘cable’ rate, the British Pound actually ended the day higher against NZD, AUD and the EUR, whilst little changed against the CAD. Overnight in Asia, the GBP is a bit firmer as investors look forward to what’s become known as ‘Super Thursday’; a Bank of England MPC meeting with a rate announcement, published Minutes then a Press Conference to introduce the new Quarterly Inflation Report.
In his appearance before a House of Lords Select Committee last week, BoE Governor Carney hinted that the Bank is preparing to upgrade the forecasts in its Inflation Report. “I would expect that in 2019 we will see a pick-up in this economy all things being equal – strong global growth, greater certainty... A disorderly Brexit, not a likely scenario at all, is less likely than at the time we did the assessment in the fall.” The easiest call to make is that Bank Rate will be kept unchanged at 0.5%. The interest rate market currently prices between two and three 25bp hikes over the next three years. Looking at a selection of forecasts from the major banks, there’s quite a split of views. Barclays say, “Overall we expect the Bank to remain in wait-and-see mode after its November hike and refrain from revising its communication in the absence of relevant events or data since the last inflation report. We retain our call for a next hike in November 2018.” Citi say, “New forecasts may show stronger growth and higher inflation rates, although the Bank will likely remain cautious due to Brexit uncertainty. We currently expect a Bank Rate hike by 25bp in Aug-18 and one hike per year until 2020”. UBS, meantime, say the BoE will hike rates during the May meeting.
In terms of UK growth, the bulls at UBS have also revised upwards their growth outlook for the UK and see the economy growing 1.4% in 2018 and 1.2% in 2019, compared with the 1.1% previously for both years. On the other hand, RBC note, “Updated Inflation Report projections probably won't result in wholesale changes for GDP and CPI, but ongoing optimism on the global outlook, prospects for pay growth and potential revisions to estimates of slack will have to be factored in”. With little genuine consensus on rates or the economy, there is the prospect of plenty of volatility in the GBP from midday onwards when a barrage of headlines hit the newswires.