###POV: Are Markets Under-pricing BoE.......>

UK VIEW: ###POV: Are Markets Under-pricing BoE Rate Path?

- In wake of the large adjustment in Bank of England interest rate hike

expectations where the market was once pricing in a 90% chance of a hike in May

(tomorrow) but is only at 10% now, the risk appears to be the MPC might comes

across on the hawkish side despite the expected downgrade in UK growth forecasts

as there remains limited/no slack in the economy.

- According to MNI PINCH the chance of a 25bp rate hike at the August MPC

meeting is 66% with markets pricing a near 100% chance of the rate hike coming

in November. Next hike is then pried in For Sep 2019.

- It will be a tricky balancing act for the MPC as if they sound too dovish then

they run the risk of markets pricing an even less chance of a rate hike this

year which would go against even BoE Governor Carney's dovish comments from

April that a rate hike is still likely this year.

- If they sound slightly more hawkish however, markets will likely just bring

forward rate hike expectation to August but leave pricing of another rate hike

for 2019 which would still be inline with BoE thinking.