BoE interest rate decision: Subtle hints of small hikes?

The BoE has been serving all its recent talk of rate hikes with a side of gradualism and a 10bp first hike is an easy way for the BoE to effectively implement this message. In July's Minutes, the BoE appeared to suggest the possibility of a hike less than 25bp, referring for the first time to 'a small increase' in Bank rate when discussing the views of those members that saw the decision as finely balanced. Maybe we are reading into it too much, but given the extensive communication August's Super Thursday will bring, there will be plenty of opportunities for further subtle hints. 

"We continue to like our flattener in Mar16 versus Mar17 Short Sterling contracts on the expectation that any talk of rate hike timing will continue to be accompanied by the qualification of gradualism," says BofA Merrill Lynch.

The other policy communication to watch out for will be regarding the APF portfolio. So far, the BoE has committed to maintaining the portfolio at £375bn until at least the first rate hike, consequently reinvesting flows from maturing gilts across the curve. The BoE holds £32bn of the three gilts maturing in September, December and January, with September's £17bn set to be the largest buyback operation carried out by the BoE so far. 

There is a small risk the BoE either changes its stance on when reinvestments will stop or communicates that a November hike is very likely and that it will stop reinvestments straight after the first hike. However, the BoE will be unwilling to attempt communicating both the first rate hike and the ceasing of reinvestments simultaneously, preferring to halt reinvestments after the first hike.