20180622-大华银行-Macro_Note_4页_511kb

Summary of the Macro Note: BoE Tilts Towards August Rate Rise

Core Content

The Bank of England (BoE) held its policy rate at 0.5% and kept the asset purchase program at GBP435bn during its June 2018 meeting. Despite the expected decision, the meeting revealed some unexpected shifts in the BoE's stance on monetary policy.

Main Points

• Rate Hike Vote: Three out of nine Monetary Policy Committee (MPC) members voted for a 25bps rate hike, marking the first time since joining the MPC four years ago that Andy Haldane supported a rate increase.

• Guidance on QE Reduction: The BoE revised its guidance on when it would consider reducing the stock of debt purchased under the quantitative easing (QE) program. Previously, they stated they would not sell bonds until the key rate reached 2%, but now they have lowered this threshold to 1.5%.

• Economic Projections: There were no updated economic projections or press conference. However, the meeting minutes emphasized that the BoE believes the weak GDP growth in Q1 was temporary, with momentum recovering in Q2.

• Labour Market: The claimant count dropped by 7.7K in May, better than the expected rise of 11.3K. The unemployment rate remained at 4.2% for the three months ending in April, the lowest since 1975. However, wage growth remained lukewarm, with average weekly earnings growing at 2.5% y/y, below expectations and March's reading of 2.6%.

• Inflation Trends: Inflation has been softening since the November rate hike. In May, headline CPI and core CPI remained at 2.4% and 2.1%, respectively, compared to peaks of 3.1% and 2.7% in November. Retail prices (RPI) eased to 3.3% y/y, with housing prices being a key contributor to the moderation.

• PMI Improvements: The manufacturing PMI improved in May, rising to 54.4 from a 17-month low of 53.9 in April. The services PMI also saw improvement, reaching 54.0 in May from 51.7 in March, although both remain below the average of 54.9 in Q1 2018.

Key Information

• The split in the MPC vote leaves the door open for a rate hike in August, with market odds now at 65%, up from 50% prior to the meeting.

• The BoE's decision is seen as a delay, not an abandonment, of its plan to gradually normalize monetary policy.

• The author's view is that there will be only one rate hike in 2018, and the timing will depend on economic performance and Brexit negotiations.

Recent Publications

The document also includes a list of recent publications from UOB Global Economics & Markets Research, covering topics such as:

• Macro+Rates Strategy: Analysis of China's potential for another Reserve Requirement Ratio (RRR) cut.
• FX+Rates Strategy: Discussion on increasing pressure for the Singapore Overnight Rate (SOR) to reprice higher.
• Thailand's MPC: Decided to keep the policy rate at 1.5%.
• Malaysia Inflation: Rose to 1.8% in May.
• FX Strategy: Observation that the Chinese Yuan (CNY) shows minimal stress despite escalating trade tensions.
• UOB House View 3Q2018: Outlook for the third quarter of 2018.
• Singapore Exports: Surged in May despite weaker electronics performance.
• Macro+FX Strategy: Analysis of the impact of US-China trade tensions on global growth.
• Japan Trade Deficit: Increased in May due to a 14% surge in imports.
• 3Q2018 Global Outlook: A quarterly forecast for global economic conditions.

Disclaimer

This document is for informational purposes only and should not be used for making investment decisions. It does not constitute investment advice, and UOB Group makes no guarantees regarding the accuracy or completeness of the information provided. Readers are advised to consult their own professional advisors for guidance on investment products.