巴黎银行-欧洲-宏观策略-英格兰银行：“这很复杂”-20190801-7页_2mb

G10 Interest Rates Summary: Bank of England's August Meeting

Core Content

The Bank of England's Monetary Policy Committee (MPC) held its August meeting, delivering a nuanced message on interest rate policy. Despite acknowledging several downside risks, including a weaker global economic environment and the potential for a no-deal Brexit, the MPC did not shift to an easing bias and instead maintained a state-contingent tightening stance. The meeting emphasized that the future path of interest rates will be heavily influenced by political developments in the coming months, which remain uncertain.

Main Viewpoints

• Cautious Stance: The MPC adopted a cautious tone, avoiding a clear shift to easing rates.
• No-Deal Brexit Uncertainty: While a no-deal Brexit presents risks, the MPC has not signaled a consensus for easing in such a scenario.
• Inflation Target Overshoot: The Bank of England's inflation forecast suggests a significant overshoot of the 2% target, even under a deal scenario, with the MPC projecting "excess demand" that could lead to further rate hikes.
• Policy Divergence: If a deal is reached, the BoE may diverge from the US Federal Reserve and ECB in its monetary policy approach.
• Market Expectations: The market currently prices in approximately 14 basis points of rate cuts by year-end, but the MPC's stance suggests that this is unlikely in the near term.
• Hawkish Interpretation: The lack of consensus on rate action under a no-deal scenario could be interpreted as slightly hawkish, reinforcing the possibility of continued tightening.

Key Information

• Inflation Forecast: The BoE's August Inflation Report highlights the risk of inflation overshooting the 2% target due to "excess demand" in the economy (see Figure 1).
• Sensitivity Analysis: The MPC provided a sensitivity analysis showing that a higher interest rate path and a stronger exchange rate, along with lower credit spreads, would be more likely in a deal scenario, potentially leading to more rate hikes.
• Fiscal Policy Outlook: The document suggests that significant fiscal loosening in the UK is likely regardless of whether a deal or no-deal Brexit occurs.
• Market Outlook: The author favors paying 10y20y GBP swap forwards against receiving 10y20y EUR swap forwards, reflecting a preference for UK rate hikes over European rate cuts.
• Political Uncertainty: The meeting underscored the uncertainty surrounding the UK's Brexit outcome, which will have a major impact on the future direction of monetary policy.
• Personnel Changes: Mark Carney's departure at the end of January adds another layer of uncertainty to the BoE's policy outlook.

Additional Notes

• The document is a market commentary produced by BNP Paribas, not investment research, and is subject to the UK Financial Conduct Authority's rules.
• It contains non-independent research and may be subject to conflicts of interest due to interactions with sales and trading functions.
• The document is intended for professional clients and eligible counterparties, and may include "Research" as defined under MiFID II unbundling rules.
• The information provided is for informational purposes only and should not be relied upon as authoritative. It may be subject to change and is not intended to provide the sole basis for investment decisions.
• The document includes important disclosures regarding options, ETFs, and convertible securities, emphasizing the risks involved in these financial instruments.
• It is not a prospectus and does not constitute an offer to sell or purchase any securities.

Legal and Regulatory Context

• The document is subject to various legal and regulatory disclosures, including those related to MiFID II, US securities laws, and other jurisdictions.
• BNPP may have financial interests in the securities or entities mentioned, and may engage in transactions inconsistent with the views expressed.
• The document is not intended for retail investors and may not be suitable for those without professional experience in investments.
• It is strictly confidential and may not be copied, reproduced, or distributed without prior written consent from BNPP.