BoE Governor Carney, in an interview last night, seemed somewhat less committal in regards to tightening policy in the UK, focusing more on the slow path in the coming years while suggesting that “a hike is likely this year”.
The market has been near “fully priced” for a 25bp hike in May and a rising expectation of a second hike later in the year.
May’s expectations have collapsed back to 50/50 and caused GBP to come under significant selling pressure.
BoE’s Saunders is speaking this morning. He was one of two members who voted for an immediate rate hike at the last meeting, so his comments post Governor Carney and this week’s mixed data – most importantly inflation, which eased to 2.5%y/y as the impact of previous sterling strength continues to dissipate – will certainly be of interest.
While we expect the unwinding of the currency effect to continue to weigh on inflation over the coming months, some acceleration in domestic cost prices is expected to temper the decline and ensure a gradual return to 2%.