BOE REVIEW: Dovish dissent exposes the current divide on the MPC

As expected, the MPC opted to hold the Base Rate at 4.75%. The main surprise for the announcement came via the vote split with three dovish dissenters (Dhingra, Ramsden and Taylor) vs. the one expected by analyst consensus. The dissenters based their decision on “The most recent data developments pointed to sluggish demand and a weakening labour market, now and in the year ahead, both of which would see further downward pressure on demand, wages, and prices”. However, this view lost out to the majority of six who wished to keep policy unchanged on the basis that “…CPI inflation, wage growth and some indicators of inflation expectations had risen, adding to the risk of inflation persistence”. Pantheon Macroeconomics notes that “most of the dovish news is caveated to death in the minutes” and “the MPC is at pains to say they want more data to 'clarify the potential trade-off between more persistent inflationary pressures and greater weakness in output and employment'.” Alongside the decision, Governor Bailey noted that the MPC “cannot commit to when or by how much they will cut rates in 2025”. As such, the statement reiterated guidance that a “gradual approach to removing monetary policy restraint remains appropriate" and “policy will need to continue to remain restrictive for sufficiently long”. In terms of the MPC’s assessment of the economy, Bank staff now expect zero GDP growth in 2024 Q4, weaker than the 0.3% that had been incorporated in the November Report, whilst CPI is expected to continue to rise slightly. Overall, there is clearly a rift within the MPC with doves concerned over slowing activity data whilst the rest of the board remains focused on stubborn services inflation and sticky wage growth. Markets currently price a 25bps Feb cut at 46% vs. 44% pre-release (note, Wednesday’s FOMC announcement is likely skewing market pricing in a hawkish direction), with a total of 53bps of easing seen by year-end vs. 48bps pre-release. 

19 Dec 2024 - 13:52- Fixed IncomeData- Source: Newsquawk