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BOE: Press conference leans dovishly - but not explicitly

BOE
Bank of EnglandCentral Bank NewsCEEMEABulletUKGlobalFixed Income BulletsForeign Exchange BulletsRegionMarkets
  • Press conference didn't really give much away on which of cases 1 or 3 is more likely. Just reiterated that case 2 was the most likely. More of a leaning would have reiterated more of a bias.
  • But Bailey did reiterate that progress on inflation has been faster than expected and if that continues BOE would need to respond "and will react".
  • He also said that it's "not sensible to conclude the path of interest rates will be very different" due to the Budget.
  • The Bank was challenged on whether the forecasts underestimate the impact of the minimum wage / employer NI increases - and Lombardelli said that the Agents are asking questions around that topic now and that the forecasts include preliminary estimates across the 4 channels that this can impact (Firms could pass on costs to consumer prices, firms could absorb the increase through lower margins or higher productivity, firms could increase wages by less or Firms could reduce employment).
  • No guidance on what "gradual" means and whether it means a quarterly pace.
  • Overall we view the press conference as marginally dovish versus the statement / MPR. Reading between the lines it does sound as though Bailey thinks that markets have overreacted to the Budget - he said to see what markets are pricing in December.
  • So on balance, it seems as though his central view is markets probably aren't pricing quite enough in terms of cuts. But he didn't say anything anywhere near that explicit.
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  • Press conference didn't really give much away on which of cases 1 or 3 is more likely. Just reiterated that case 2 was the most likely. More of a leaning would have reiterated more of a bias.
  • But Bailey did reiterate that progress on inflation has been faster than expected and if that continues BOE would need to respond "and will react".
  • He also said that it's "not sensible to conclude the path of interest rates will be very different" due to the Budget.
  • The Bank was challenged on whether the forecasts underestimate the impact of the minimum wage / employer NI increases - and Lombardelli said that the Agents are asking questions around that topic now and that the forecasts include preliminary estimates across the 4 channels that this can impact (Firms could pass on costs to consumer prices, firms could absorb the increase through lower margins or higher productivity, firms could increase wages by less or Firms could reduce employment).
  • No guidance on what "gradual" means and whether it means a quarterly pace.
  • Overall we view the press conference as marginally dovish versus the statement / MPR. Reading between the lines it does sound as though Bailey thinks that markets have overreacted to the Budget - he said to see what markets are pricing in December.
  • So on balance, it seems as though his central view is markets probably aren't pricing quite enough in terms of cuts. But he didn't say anything anywhere near that explicit.