Bank of England Hawks Prepare to Take Flight

Kristin Forbes has spoken – and currency markets have reacted.

The pound is seen trading higher against the majority of G10 peers on signs that the UK is closing in on a future of higher interest rates.

What is it about Forbes that has elicited such a reaction?

Does she hold more sway than other members on the Bank of England’s Monetary Policy Committee?

No – the reason for the market reaction lies with where Forbes sits within the spectrum of Hawks and Doves at the MPC with the Hawks representing the pro-rate rise camp and the Doves looking to keep interest rates as low as possible for as long as possible.

Heading the Hawks is Ian McCafferty who voted this August for an interest rate rise – not surprising.

Analysts had said the real test would be whether similar-minded members would join him.

That is why we said watch for how Kristin Forbes votes as she is widely considered to be sympathetic to the camp advocating for higher interest rates.

In the event she did not opt to join McCafferty and the pound fell.

But, a weekend article in the Telegraph penned by the MPC member suggests she may be shifting stance and opening the door for other members to join the pro-hike camp.

In doing so she has potentially hastened the first interest rate rise of the upcoming cycle and boosted interest in the British pound exchange rate complex.

We are expecting the entire committee to vote for a rate rise within 6 months.

“As another voting member of the Monetary Policy Committee provided hawkish comments for investors to chew on, with Kristin Forbes joining David Miles and Mark Carney (and the already ‘yes’ voting Ian McCafferty) in the pro-rate hike camp, sterling’s strength is only likely to increase as the touted turn of the year lift-off approaches,” says Connor Campbell at Spreadex.

Forbes said the UK is in a “solid recovery” and warned that the benchmark policy rate will need to rise before headline inflation hits the target 2 percent.

She added that keeping rates low for too long carries distortion risks.