Goldman: Testing BoE Dovishness

Goldman Sachs note that “the BoE hiked 25bp on Thursday and set up a fully data-dependent May meeting by no longer noting that risks to the inflation outlook are skewed significantly to the upside. Hidden behind an assessment that the GDP path is “likely to be somewhat stronger than expected previously”, the BoE meaningfully upgraded Q2 growth from -0.4% (non-annualized) to “slightly” positive and even conservative assumptions on the path from there suggest large upgrades to 2023 Q4/Q4 growth in the May MPR.”

• “Throughout last year, the BoE justified underdelivery by leaning on a weak consumer outlook, which was never really challenged because weak growth was expected in the future. With these sizeable growth upgrades, it will be challenging for the BoE to maintain this messaging, although the BoE may try and push off a change in tone for now (the March statement picked up on weaker sequential wage pressures).”
• “We no longer look for idiosyncratic GBP weakness, as investor sentiment on the fiscal side has improved meaningfully, and are updating both our 6- and 12-month EUR/GBP forecasts to GBP0.88 (from GBP0.89 and GBP0.90 previously) but keep our 3-month forecast unchanged at GBP0.89 because BoE dovishness could continue for a bit longer. We would consider turning even more positive on GBP if we became confident in a revised approach from the BoE.