BoE Rate Change Unlikely
The majority of the market and economists do not expect the BoE to budge on rates this week, scheduled to take the stage on Thursday at 11:00 am GMT. You may recall that from the March meeting, the MPC voted by a majority 8-1 to keep rates unchanged, observing two members (Jonathan Haskel and Catherine Mann) downshift their votes to hike the Bank Rate in favour of a hold and Swati Dhingra continued to vote for a 25bp cut. It was noted at the time of the release that this is a central bank manoeuvring towards policy easing and could prove a notable headwind for sterling (GBP).
Heading into this week’s meeting, it is obviously no secret we still have divided ranks among policymakers at the BoE. However, recent comments from BoE Governor Andrew Bailey and Deputy Governor David Ramsden aired a dovish vibe, expressing confidence in the disinflation process and that inflation risks remain ‘skewed to the downside’. So, with a potential change in votes in the not-so-distant future from these two key players and MPC member Dhingra likely to continue to vote for a cut, the gap between holding policy at current rates and a majority vote to cut is closing in.
The March UK CPI revealed a slower-than-expected pace of disinflation across all four key metrics, though year-on-year measures continued to exhibit a disinflationary trajectory. This followed mixed labour data; the unemployment rate jumped to 4.2% in the three months to February from the upwardly revised 4.0% in the three months to January 2024, and wage growth was stronger than expected. The above, coupled with economic growth remaining weak, may pave the way for the central bank to begin pencilling in a timeline for easing.
Although a rate cut is pretty much off the table this week, traders will look to (and respond to) the rate statement, the updated economic forecasts, and the press conference for insight into when easing could commence, along with the BoE’s outlook on inflation and whether the central bank is waiting for the Fed to make its move before committing.
UK to Exit Technical Recession?
Friday welcomes UK growth data ahead of the European cash open on Friday at 6:00 am GMT; market consensus heading into the data expects we’ll see another expansion in March. This follows economic expansion in January and February’s reports: +0.3% and +0.1%, respectively. This optimistic start to the year has also likely pulled the UK economy out of what was a mild ‘technical recession’ that kicked off in the second half of last year.
According to Bloomberg’s estimates, the median forecast indicates a +0.1% expansion in March (estimate range between +0.2% and -0.2%), with the QoQ release forecast to print +0.4% for Q1 (estimate range between +0.4% and +0.1%).
