Bank of America Merrill Lynch Global Research discusses its expectations for tomorrow's BoE's policy meeting.
"The probability of the UK leaving the EU with a deal is not the 100% the Bank of England assumes, in our view. After being at loggerheads with market pricing for months because of that assumption, we expect the BoE to get real in this week's Quarterly Inflation Report.
Specifically we expect the BoE to: 1- Say rates need to rise if there is a deal. 2- But disconnect policy from that 'deal' base case by saying policy may need to move in either direction depending on the Brexit outlook," BofAML notes.
"In short, we expect the BoE to change its guidance from "the market is not pricing enough hikes" to "we will wait and see what happens". To shift the market, however, we think the BoE would have to say more about their desired policy stance if there is a deal (we do not see this changing materially); their view on the chances of no deal (we see comments on this as unlikely); and more specifics on the BoE's reaction function in a no deal scenario (some potential for this, but Carney will likely be cautious)," BofAML adds.