An interest rate rise today may not be the done deal the market expects, commentators have warned, pointing to little change in economic data since the last Monetary Policy Committee (MPC) meeting.
Markets are currently pricing in a 90% chance the Bank of England (BoE) will raise rates by 0.25% for the first time since June 2007 at its November meeting today with all signs seeming to point to a hike.
BoE governor Mark Carney last month revealed a more hawkish stance when he said the Bank could begin "easing its foot off the accelerator" before the end of the year.
Furthermore, although the MPC held rates at 0.25% in September, minutes said a tightening of monetary policy could occur due to the "slightly stronger than anticipated" UK economy.
However, Laith Khalaf, senior analyst at Hargreaves Lansdown, has said market expectations are too "rich" given the current economic data, MPC voting history and the "proclivity of the bank to disappoint expectations".
In September, only two of the nine MPC members voted for a hike to 0.5%, Michael Saunders and Ian Macafferty, minutes revealed.
Khalaf said: "The market looks to have got ahead of itself by treating a rate hike on Thursday as a done deal.
"There is therefore scope for disappointment come Thursday, so a fall in sterling and a gilt rally are on the cards if a rate rise fails to materialise.
"We would not be too shocked to see rates held at 0.25% on Thursday, though the Bank does need to put up or shut up soon."
However, he said: "A failure to raise rates in the coming months would see Mark Carney rebranded from an unreliable boyfriend to a downright cad."
Kacper Brzezniak, UK fixed income portfolio manager at Allianz Global Investors, said he was only pricing a 60% chance of a rate hike on Thursday, well below market expectations.
"To be sure, both wages and growth in the UK are continuing to disappoint, but inflation is running well above the BoE's target - putting the Bank under pressure to act. We are not quite as convinced [as markets]; we see around a 60% chance."
'One and done'
Some market commentators have said the real debate lies in whether this is the beginning of a monetary policy tightening cycle or simply a "one and done" rate rise.
Edward Park, investment director at Brooks Macdonald said a rate hike would reflect a reversal of the bank's decision to lower rates by 0.25% in August last year following the UK's vote to leave the European Union.
"We believe any hike in November will reflect a reversal of the post-Brexit stimulus rather than the beginning of a short term series of hikes," Park said.
"With the UK consumer still heavily indebted (via both mortgages and credit) at the same time as there is a real wage squeeze (inflation rate higher than wage growth) we do not think the near-term outlook warrants materially higher rates."
Park pointed to inflation as the potential main driver for a rate hike on Thursday, with the Consumer Prices Index rising to a five-year high of 3% in September.
"A lot of the higher inflation which may be of worry to the BoE is currency related and therefore mostly transient," Park said. "Without a material improvement in the consumer backdrop, we would expect the BoE to pause after November.
"All of that said, the FTSE 100 is still highly correlated to the fate of sterling so whether the market believes the BoE will raise rates further in 2018 or not will remain a key variable."
Furthermore Adrian Gosden, investment director at GAM, said the type of inflation in the UK economy was the reason why the BoE was yet to hike rates.
"Inflation is coming from import and currency which is why the BoE has not pressed the button yet. If inflation starts to dip again and rates have been raised then it could kill the economy."
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