UK: Super Thursday Preview – Scotiabank

Alan Clarke, Research Analyst at Scotiabank, expects the Bank of England to cut the Bank Rate by 25bp at the August meeting.

Key Quotes

“We expect this to be augmented by an expansion in QE of GBP50bn, although our conviction in this call is low. If we are going to be wrong, it is that the BoE defers expanding QE until a later date.

If QE is announced, we expect it to take the same form as the previous instalments, i.e. continued purchase of conventional gilts and not extending purchases to corporate bonds.

We expect the Bank’s growth projection to be revised down from an average of just above 2% y/y in 2017 down to around zero. There are risks in both directions around this.

Meanwhile, the Bank’s inflation projection is likely to be ‘hump shaped’. The weaker GBP will justify a sharp upward revision to the near-term projection. However, the MPC are likely to look through this temporary boost to inflation.

The wider margin of spare capacity and fading of the rise in imported inflation should lead to a medium term inflation projection below target in the 2-3 year ahead portion of the projection.”