There were a number of changes to the tone that together add to another dovish shift for the MPC, This seems to further increase the probability of an August cut.
- The MPC voted to leave Bank Rate unchanged at 7-2 as expected with both Dhingra and Ramsden dissenting in favour of a 25bp cut, repeating the voting outcome seen at the May meeting.
- However, there were a number of changes to the tone that together add to another dovish shift for the MPC – with a more pronounced change of communication than either we or market participants had expected. Indeed, the market-implied probability of an August cut rose from around 1/3 to around 2/3 following the policy decision.
- There were three notable changes in our view: a downshift in the importance of data dependency, some members seeing the decision as “finely balanced” as well as some interesting discussions on profit margins and cost passthrough.
- It now appears as though there is a lot less emphasis on individual data points here. And furthermore the bar of upside surprises to avoid an imminent cut at the August meeting appears to be far higher than we had anticipated. This seems to increase further the probability of an August cut.
- The BOE also announced that it would slow long-dated APF sales in Q3, in with our expectations.
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