BOE REVIEW: Moving in the right direction

As expected, the MPC once again opted to stand pat on rates at 5.25%. The slight surprise came via the vote split which saw Haskel and Mann move into the unchanged camp, leading to an 8-1 split with Dhingra the lone dissenter in opting for a cut. That being said, divisions remain within the unchanged camp with the account of the meeting noting that, at one end, some believe that developments suggest the restrictive stance of policy is having a material impact on reducing inflationary pressures. At the other end of the spectrum (likely Haskel and/or Mann) some believe wage growth is too high and there are only limited signs of services price inflation returning to a target-consistent pace quickly enough. In terms of guidance, the MPC maintained the statement that "policy will need to remain restrictive for sufficiently long". However, Governor Bailey does acknowledge that "things are moving in the right direction". In terms of what comes next, CPI is expected to fall slightly below 2% in Q2 due to the fuel duty freeze. However, this is unlikely to draw the BoE into an imminent rate cut given that inflation is expected to rise thereafter and services inflation remains "sticky". Accordingly, market pricing still has the first 25bps reduction fully priced in August. Year-end pricing has moved a touch more dovishly with 75bps (i.e three cuts) of loosening now expected vs. circa 70bps pre-release. 

21 Mar 2024 - 13:05- Data- Source: Newsquawk