20181026-法国巴黎银行-UK__MPC_to_strike_a_more_hawkish_tone_in_November_8页_882kb

Summary of the Document: UK MPC Interest Rate Outlook for November

Core Content

This document provides an analysis of the UK Monetary Policy Committee's (MPC) likely stance during the November Inflation Report. It outlines the current economic environment, expectations for interest rate changes, and the potential impact of external factors such as the Brexit situation and the Autumn Budget on the MPC's decisions and communication.

Main Points

1. MPC Stance

• The MPC is expected to adopt a more hawkish tone in its November Inflation Report.
• Despite the current economic growth being in line with August forecasts, there is a potential for upward surprises in Q3 growth.
• The Committee is likely to view the recent increase in wage growth as a "new dawn" rather than a "false dawn", suggesting sustained inflationary pressures.
• There is some internal disagreement within the MPC about the sustainability of wage growth and its impact on inflation.

2. Interest Rate Expectations

• The document suggests that interest rates are set to rise earlier and faster than what markets currently anticipate.
• It highlights the possibility of two rate hikes in 2019, in May and November, which is currently underpriced by the market.
• The Autumn Budget is expected to have a modest net giveaway, which could support higher interest rates.
• However, due to the short time frame before the Budget, the MPC may not fully incorporate its effects into its forecasts.

3. Brexit Impact

• The lack of a Brexit deal following the October Summit and the diminishing possibility of a breakthrough in November challenge the MPC's "smooth transition" assumption.
• The FX market indicates that investors are under-hedged and under-pricing the risk of a disorderly Brexit.
• The MPC is unlikely to signal an imminent rate hike due to ongoing Brexit uncertainty, but it will maintain its guidance for a gradual tightening of monetary policy.

4. Economic and Inflation Outlook

• GDP growth is expected to be above the MPC's potential estimate, with a revised forecast of 0.6% for Q3.
• Inflation is expected to gradually return to the 2% target, with the steepening yield curve contributing to downward pressure.
• Wage growth is already 25bp higher than the MPC's assumption, which could push up domestic cost pressures if productivity growth remains weak.

5. Market Strategy and Tools

• The gilt fly (10y, 5y, 10y, 15y) is retracing to all-time lows, offering a good risk/reward for selling.
• A sell-off could occur on any hawkish surprise due to limited outright positioning.
• Paying February 2019 MPC outright around 72/73bp could be a cheap soft Brexit trade if a deal is reached.

Key Judgements and Analysis

Conclusion

The MPC is expected to maintain its guidance on a gradual tightening of monetary policy in 2019, assuming a smooth Brexit. The economic data supports this view, with solid growth and rising wage growth. However, the Brexit uncertainty and market under-pricing of risks could lead to a hawkish surprise in the November Inflation Report. The global economic environment remains a concern, with weaker PMI data in Europe, but the UK economy is still on track for a gradual tightening of monetary policy.

The document also includes important legal and compliance disclosures, emphasizing that it is non-independent research and marketing communication, not investment advice. It is intended for Professional Clients and Eligible Counterparties under MiFID II, and not for public or retail investors.