MNI BOE WATCH: March Hold Seen, Fresh Cut Clues Likely Sparse

The Bank of England is set to leave policy on hold and is likely to leave its guidance unchanged on Thursday after its March meeting, providing few, if any, fresh clues as to the likely timing of its first rate cut this cycle.

In February the Monetary Policy Committee altered its statement to show a cut was on the table but Governor Andrew Bailey and colleagues gave away little regarding its timing. Minutes of the March meeting, which is not followed by a press conference, are likely to offer similar fare, with analysts expecting little beyond a possible shift by one or maybe both of the members who voted for a hike last month to join the majority in voting to hold Bank Rate at 5.25%, particularly if Wednesday’s core inflation data shows further easing. (See MNI INTERVIEW: BOE Right To Be Cautious Over Cuts - NIESR)

While six members voted for a hold last time, Jonathan Haskel and Catherine Mann wanted a 25-basis-point hike, with only Swati Dhingra calling for a 25bp cut. Haskel has already indicated he would be prepared to change his vote if data shows more evidence of disinflation. Mann has acknowledged that her vote for a hike was "finely balanced,” but has continued to highlight the risks of inflation settling above target, citing downward nominal price and wage rigidities and the need for zero goods inflation if higher services inflation proves sticky.

INFLATION PERSISTENCE

The MPC collectively has pointed to labour market tightness, wage growth and services inflation as key for judging whether higher inflation is likely to prove persistent. Last month’s statement changed the framing of guidance from the question of the appropriate level of monetary restriction to that of how soon should rates be cut, Bailey noted to the Treasury Select Committee last month. (See MNI INTERVIEW: Forward Guidance Key Tool However It is Called)

The good news is that "whichever way you look at it ... we are near, or at, full employment," Bailey said at a Banca d'Italia event on March 12, adding that he was "tentatively" encouraged by signs that the period of high inflation was due to the successive shocks from Covid-related supply disruptions and the Ukraine war rather than reflecting persistent second-round effects.

The nearest any MPC member has come to commenting on the likely timing of easing is that both Chief Economist Huw Pill and Bailey have, at various points, said that the market rate path indicating cuts this year is not unreasonable. Market measures of the timing of easing though have shifted, with the likely date of the first cut pushed back and moving between June and August.

Market rates pricing implies a 10% probability of a cut by May and 45% by June, with the first cut fully priced in in August, with 64bp of cuts seen by year end.