The dovish Bank of England’s message may help contain GBP gains but there remains a risk over the coming months that the markets question that message, helping lift sterling, in the opinion of economists at MUFG Bank.
“We remain GBP bullish but the BoE’s message may curtail upward pressure on rates and FX over the short-term.”
“The bar is high (7.25% GDP) for the market to lift expectations on BoE becoming more hawkish.”
“While Governor Bailey cited downside risks to growth, the BoE’s assumptions on excess supply could also prove excessive and therefore inflation over the short-term could prove higher. That would be one example of the markets questioning the BoE’s assumptions and shifting assumptions on BoE action coming sooner. We still see that as plausible in the period when UK GDP growth is set to rebound very strongly.”
