Bank of England likely to hike Bank Rate in August

During the June meeting, three of BoE’s nine MPC members had voted for raising the Bank Rate. Significantly, BoE Chief Economist Haldane was one of the three, suggesting that more might follow during the upcoming meeting on 2 August, noted DNB Markets in a research report. The majority of six might like to see additional data underpinning the view that the softness seen in the first quarter was momentary, before they vote for hiking the bank rate.

The subdued first quarter growth was mainly because of the decelerating growth recorded in consumer demand. Retail sales figures for April and May were solid, recording a total rise of 3.1 percent, underpinning the MPC’s view that the deceleration was temporary. But the solid retail sales data for May is expected to have been stimulated by warm weather and the royal wedding. Therefore, a downward correction might be seen in the June data. However, such a correction is unlikely to be large enough to derail a likely hike at the August meeting. The BoE also disregarded the weakness in industrial production and exports at the June meeting, which also underpinned a hike in August.

The market appears convinced of an August hike. After the June meeting, the market adjusted the possibility of a hike in August upwards. Currently, the possibility of a hike in August is about 65 percent, according to Bloomberg. The likelihood might drop if retail sales data for June indicates a considerable decline, and the Bank of England still has the likelihood to guide the market for a later hike. But the MPC made such a turnaround ahead of the May meeting, and might most likely wish to avoid another turnaround ahead of the August meeting.

According to DNB Markets, the Bank of England is expected to hike the Bank Rate in August. This view is also underpinned by the ongoing uncertainty surrounding Brexit, which might heighten in the autumn. Thus the MPC might want to raise ahead of this period.

“We assume that the Bank Rate will not be hiked further until late next year, i.e. well after the formal Brexit has taken place”, added DNB Markets.

At 21:00 GMT the FxWirePro's Hourly Strength Index of British Pound was bullish at 76.0056, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -104.535. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex