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Bearish Focus

SONIA: ###Markets are nearly fully expecting the Bank of England raising
interest rates on Thursday with MNI PINCH seeing a 89% chance of a 25bp rate
hike. The question the majority of analysts are asking though is what will the
vote be and will forward guidance still says markets are underestimating the
future path of interest rates?
- So far majority of analysts see a 7-2 with either Ramsden and Cunliffe or
Tenreyro as the dissenters and are leaning towards rates being on hold for 2018
compared to current pricing of a second 25bp rate in Aug/Sept.
- POV: If the BoE hike on Thursday this will be the first rate hike in over
10-years, the BoE would more than likely wait to seen the impact this will have
on the economy before raising rates for a second time. In addition Chancellor
Philip Hammond has said that if there was no agreement on a Brexit transition
deal then the UK economy would start to feel the impact in Q1 2018. With the
markets pricing in a 1-in-3 chance of a 2nd rate hike in February and a 2-in-3
chance in May, this appears very steep, and would probably not fit the BoE's
talk of hikes being "gradual and limited".