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    Don't expect Bank of England to wait – BBH Sandeep Kanihama

    Research Team at BBH, notes that the investors are debating over whether the Bank of England will ease policy at the July 14 MPC meeting or wait until August Quarterly Inflation Report, when new post-Brexit forecasts will be ready.  Key Quotes“There are many dimensions to monetary policy, and the first move could come this week.  Of the various parts of the UK body politic, the Bank of England appears to be the most prepared for Brexit.  It had been very clear in its assessment of the economic and monetary consequences.  The BOE's Finance Policy Committee met last week.  It may have decided to reverse its March decision to raise the counter-cyclical increase in the capital buffer of UK exposure of banks to 50 bp (of risk-weighted assets) from zero.  This could be announced as part of the Financial Stability Report slated for release on July 5.  Also, the BOE is going to make its liquidity injections more frequent, moving from monthly to weekly operations.Among the key takeaways from the Great Financial Crisis was that aggressive action early produces more results and sooner than a gradualist approach.  The yield of the June 2017 contract has dropped 40 bp, which partly reflects the unwinding of a tightening bias that investors had expected.  Carney suggested there may be scope to cut rates, but investors expect the BOE to stop shy of negative interest rates.  After the historic drop, sterling spent most of last week consolidating in a triangle pattern, which is often a continuation formation.  One of the leading candidates as the next Prime Minister, Gove, has indicated a reluctance to invoke Article 50 this year.  It is not clear why or what benefit is secured by extending the process.  There is nothing to negotiate with the EU until Article 50 is triggered.  In the meantime, UK's influence in Europe is already declining, though its obligations and costs (now Gove says he was talking about gross costs during the campaign rather than net costs, as the remain camp insisted on using).  It is difficult to envisage how it can accept the rotating EU presidency next year.  Some people are arguing that the longer it takes the UK to invoke Article 50, the more unlikely it is ever to be triggered.”


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