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Inflation forecast shows MPC uncomfortable with market pricing; but first cut in Aug likely

BOE
  • Biggest surprise in our view was the 1.6% 3-year CPI forecast.
  • There were no meaningful changes to the guidance with this part remaining in the Minutes but not upgraded to the statement: "The Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level."
  • Around 50% of analysts had expected Ramsden to vote for a cut - and most of the rest had seen it as a significant risk. So that is marginally dovish as we are one vote closer to quorum to cut.
  • The CPI forecast being below the expected 1.7% in 3-years does signal that the MPC is uncomfortable with the number of cuts currently priced in by markets - and the 1.9% in 2-years time is also just below the 2% target.
  • So this is a rather implicit signal to the market in our view. But the MPC hasn't wanted to commit to a future date for a first cut here. June definitely remains in play in our view, but August still appears more likely (in line with our pre-meeting view). With no pre-commitment today, the MPC may prefer to wait for August to present a cut with new projections and a press conference. We do have 2 more significant labour market / CPI reports before the June meeting though - so a June cut is still very possible.
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