There are two questions on today’s “guidance” announcement from the Bank of England. First, does Mr. Carney deliver? Second, does the market believe him?
On the first question, Mr. Carney probably does deliver. The problem is that the market is already expecting this. Short-end yields are about 20-25bps lower compared to last month’s BoE statement on “unwarranted” rate moves, and the first hike is not priced until Q4 2015. There is scope to push this out further to 2016 depending on the language and/or thresholds used, but with less than 100bps of hikes priced in for that year the potential for a huge surprise seems rather limited.
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Deutsche Bank