BoE prefers to be behind the curve on interest rates, Credit Suisse says

The Bank of England was not ready to act anytime soon due to the risk of undue pressures on sterling, that was the message from the 5 November 'Super Thursday' analysts at Credit Suisse said.

"The downward pressure from the strong currency to 'core' inflation was judged [by the Monetary Policy Committee] to be persistent and stronger than before," the Swiss broker´s UK Economics&Strategy team said in a research report sent to clients on the next day.

Analysts S.Jalinoos, D.Russell and N.Hill still expected the labour market to tighten rapidly and pay growth to accelerate.
However, "the MPC is likely to react in a dovish fashion as it prefers to be behind the curve," they said.

"The dovish reaction of the Bank of England to the hawkish Fed makes us believe that the Fed matters less for the Bank of England than we thought."

That meant the BoE wouldn't necessarily be close behind the US central bank when it decided to raise rates.

In practical terms, the BoE´s decision to shift its focus towards the risk of undue strength in sterling has "important" implications for market pricing of implied volatilities in euro/gbp and on how implied (historical) relative correlations between the pound and US dollar are factored in.