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Cunliffe looking towards May forecasts, but still sounds dovish

BOE
  • BOE Deputy Governor and MPC member Cunliffe has given a speech today in which he sounds unconvinved about the need for more rate hikes. Recall that he was the only MPC member to note vote for a hike in March, instead preferring to vote to keep policy unchanged. He explains some of the rationale for the reasons below but places more emphasis on higher inflation as being conditional on the tightness of the labour market (rather than commodity prices) and doesn't seem to see urgency in the need to act (although does not rule out further tightening). Key quotes below:
  • "I do not think we are yet seeing a psychology of persistently higher inflation emerge. The predominant driver of the growth we have seen in pay has been the tightness of the labour market. There may also now be some element of catching up with inflation that has already happened."
  • "While I recognise the risk of second-round effects and that further tightening of monetary policy might be necessary, I am not at present convinced that we will inevitably have to lean heavily and constantly against an embedding of an inflationary psychology as we progress through this challenging period and as the impact of higher commodity prices on real household incomes depresses activity. Rather, we will need carefully to judge the risks on both sides, weighing the evidence on the evolution of domestic prices, wages, activity and employment as it emerges. The MPC’s next forecast will be the first opportunity since the invasion to do that."
  • SONIA strip if anything a couple of ticks lower following the speech, probably because he has not ruled out further tightening, but given that Cunliffe is already an outlier on the MPC, it's hard to read too much into his speech being a more widely held view on the MPC.
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