MNI BOE WATCH: BOE Set To Hold, Could Signal Summer Cuts

The Bank of England is set to leave its policy rate on hold at 5.25% on Thursday, but a likely shift to a lower inflation trajectory in the Bank’s projections, together with potentially more dovish commentary, could pave the way for cut by June or August.

A dovish speech by Deputy Governor Dave Ramsden, in which he said that inflation risks had shifted to the downside, has also raised the chances that he will join independent Monetary Policy Committee member Swati Dhingra in voting for a cut this month. While Chief Economist Huw Pill later argued that nothing much had changed, Ramsden has a track record of anticipating future moves, while headline inflation is expected to hit the 2.0% target in the next print. (See MNI POLICY: BOE's New Dove Ramsden Often Leading Indicator)

The Monetary Policy Report’s central projection for inflation, based on a market rate path which has shifted markedly higher as expectations of Federal Reserve cuts fade, looks likely to be lower than in the previous quarterly forecast in February, which showed headline inflation hitting the 2.0% target before rising again in the second half of this year to nearly 3% in the first quarter of 2025.

MARKET EXPECTATIONS

A May projection for inflation holding around target would be compatible with gentle easing in line with current market assumptions, with a first cycle cut coming in the summer, though pricing continues to suggest that a June cut will be a close call.

The Bank has multiple avenues to deliver a more dovish message if it so chooses. The Monetary Policy Committee could refer to downside risks or tweak guidance in some other way to signal more clearly that a cut is in sight, although Governor Andrew Bailey on past form will avoid saying anything specific on timing.

At the last meeting, Bailey used his media comments to deliver the clearest message that rate cuts were in sight. In contrast, guidance in the minutes stuck to the formula that policy would "continue to monitor closely indications of persistent inflationary pressures and ... keep under review for how long Bank Rate should be maintained at its current level," with MPC members said simply to have a range of views on how far risks of inflation persistence had receded.

The MPC is also likely to elaborate further on how it is assesses geo-political risks, with the Bank having published a working paper on the subject and with outsiders seeking clarity on how the myriad risks are factored in.