Former Goldman Sachs economist Ben Broadbent is Sentance’s replacement, and comments last week suggest he is by no means as hawkish as his predecessor. In his appearance before Parliament’s Treasury Committee last week, he stated that if VAT and high commodity prices are stripped out of the headline UK inflation figure, we are much closer to the BoE’s official 2% target. These comments are not consistent with those of a ‘nailed on’ hawkish voter. He is likely to be viewed as a swing voter, and this could push expectations of a BoE rate rise back, or at least makes bringing expectations forward more difficult.
Spencer Dale has come out with some real hawkish rhetoric of late, stating that he was “not at all confident that the recovery has taken hold and will definitely power away. However, I'm even more worried about what's going on in terms of inflation.” Perhaps it is Dale that will replace Sentance as the sabre-rattler in chief.
As it is, the market has the BoE raising rates in its January 2012 meeting. There is so much that can change in this time that for us to commit to a specific month seems more than a little speculative. However, we currently would be sceptical of bets being brought forward to this year, based on the current performance of the UK economy at present and based on the removal of the hawkish faction’s most outspoken voter. Richard Driver
Currency Analyst – Caxton FX
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