Scoring Europe: A Hawkish BOE in a Neutral Region

  • Wednesday, August 5, 2015

Rebounding from the recent lows, the European region scored a neutral 0 this week.

European Central Bank Mood

In the throes of Grexit, the summer months saw the ECB (European Central Bank) adopt a decidedly dovish stance–peaking in June. But as Greek tensions seem to be taking an August holiday, central banks in mainland Europe and Scandinavia have adopted a suitably neutral attitude.

The one major outlier in this neutral region is the Bank of England (BOE), which has actually trended hawkish of late.

boe-08-07-2015

How hawkish is the BOE these days? The most hawkish it’s been since before the onset the financial crisis–nearly a decade ago. These sky-high scores indicate that the BOE is almost definitely going to raise rates very soon, and a rate increase at the August 6 BOE meeting could be justified—or even expected.

While a rate hike seems imminent for England, the BOE will be working against the inertia of almost half a decade of flat rates, so it would not be too surprising for the policy committee to hold off for the moment, see how the rest of Europe fairs through the remainder of the summer, and pay close attention to the Fed’s moves.

Bottom line: Most of Europe is flat, waiting on economic consequences of Greece. Only the British economy is strong enough to see tighter policy, and, despite hawkish sentiment, they  are clearly still wary of the tenuous situation in mainland Europe as well as weak growth in China and disinflationary pressure from low energy prices. Prattle expects the BOE to increase rates at least once before the end of 2015 with that first rate increase coming in September or October, though the data does indicate a August rate increase would be justified.

The Prattle Team,
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Every week the Prattle team will be publishing its take on a global central bank region. There are 4 regions–European, North American, South American, and Asian–and the regions will be scored based on our analysis of all the central bank communications in that region over the past week. Indicating the “hawkishness” or “dovishness” of the region, the scores will be given in integers ranging from -2 to +2 where -2 is extremely dovish and +2 is extremely hawkish.

For more precise scoring on individual banks, speakers, and communications, you can reach out to Prattle on our contact page or through this link.