VIEW: J.P.Morgan Stick With Hike Call, But Lower Conviction

J.P.Morgan write “last week we argued the simple case for expecting a BoE hike this week: two of the three indicators the MPC is watching most closely had shown surprises in a hawkish direction since August (wages and services inflation).”

• “Now measures covering both labour market tightness and services inflation are coming in on the dovish side, leaving wage growth as the only area that is on track to overshoot expectations.”
• “Even there, the last couple of months prints have cooled and point to a drop in the annual rate before long.”
• “Looking at the data in this way, a simple case could now be made for the BoE staying on hold tomorrow.”
• “The uncertainty is whether the strength in wage growth alone (i.e. just one out of the three indictors in focus) could be sufficient to generate another hike.”
• “The MPC’s reaction function is not sufficiently clear to answer this question with confidence, but the general dovish shift in their rhetoric of late suggests it may not be.”
• “It’s hard to have high conviction over the outcome of tomorrow’s meeting. We are sticking with our initial call for a 25bp rate hike, but we now see the odds of that outcome as close to 50/50 and would not be surprised if the MPC held rates. If the BoE does hike, its description of the recent dataflow alone is likely to send a dovish signal.”