Amid high volatility emanating from the Trump administration’s global reset of trade and security, the Bank of England is expected to remain on hold at its scheduled meeting on Thursday and keep the base rate at 4.5%. Key will be whether the MPC reinforce market pricing toward a cut at its next meeting on May 8th. That is when the BoE will issue its next quarterly Monetary Policy Report (MPR), including updated projections to the last forecasts that were issued back in early February. Anything other than “a gradual and careful stance to further policy easing” will be a surprise and move GBP, which is currently getting a lift from bumper eurozone fiscal plans.
Since the last BoE meeting, data has been mixed with headline inflation rising to 3.0% from 2.5%, core picking up to 3.7% from 3.2% and services jumping to 5.0% from 4.4%, albeit this was below the bank’s forecast of 5.2%. Jobs data is due on the morning of the announcement; however, recent figures have been characterised by sticky wage growth, declining vacancies and ongoing upside in the unemployment rate, though the latter has reliability issues.
From a growth perspective, GDP for January unexpectedly contracted and slowed from the prior print of 0.4%; but monthly growth data is seen as volatile. More timely survey data from S&P Global has shown that the services sector advanced to 51.0 in February from 50.8, manufacturing slipped to 46.9 from 48.3, which left the composite at 50.5 versus 50.6.
Vote split
The MPC is expected to lean towards focusing on its inflation mandate in a potential 7-2 vote split. Dhingra and Mann is likely to remain the lone dissenters, though it is unclear what magnitude they will support. Interestingly, there are a range of views here with some expecting Taylor to join the dissenters, whilst others think Mann will return to the unchanged camp after very surprisingly backing a 50bps move last time.
The bias is likely to lean that way with communications reinforcing that “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate” and that policy will be “restrictive for sufficiently long”. A more cautious stance would cause the pound to sell off.
Market reaction
Mixed data and elevated uncertainty very likely warrant a steady-as-she-goes bias around further rate cuts as officials keep their options open. That means one 25bp move every quarter as the MPC watch the labour market that is gradually loosening, while price pressures stay elevated. They also have to add global trade policy tensions and domestic fiscal policy changes into the mix, with next week’s Spring Budget a major risk event.
Money markets are pricing in around 54bps of rate cuts for 2025. A more dovish bias by the bank, concerned with stagnant growth, could hit sterling’s recent run to four-month highs versus the dollar. This currently looks mildly overbought, though more good news out of Germany could see cable push above 1.30.