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Carney's `Brexit' Headache Intensifies With Rate Outlook Schism

Monday, Apr 11 2016
Mark Carney could face a challenge in just over two months, regardless of whether Britons choose to stay in or quit the European Union. While the Bank of England governor has signaled a slow tightening path, and investors see no rate increase for years, a vote to stay in the EU on June 23 potentially creates a whole new backdrop. With ‘Brexit’ risk removed, markets could pull in bets for a hike, generating a new communication hurdle for the Monetary Policy Committee, which holds its monthly meeting this week. 
The BOE’s nine-member MPC will probably vote unanimously to keep the benchmark interest rate at a record-low 0.5 percent on Thursday as uncertainty generated by the referendum supports the case against action. The decision will be released at noon, alongside a policy statement and a record of members’ votes. If Britons vote to remain in the EU, attention could return quickly to when the BOE will start raising rates. With wage and unit labor cost growth gradually increasing as economic slack is eliminated, that could be as early as the end of the year, according to James Rossiter, an economist at TD Securities in London.
 
Sterling is currently being traded few points above 1.4110 level. Pair is likely to find support around 1.4050 handle and resistance above 1.4150 level. There will be no major data releases later today.
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