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MNI BOE WATCH: MPC To Split Between 25, 50Bp Hikes

The Bank of England’s Monetary Policy Committee is set to announce another split decision on Thursday, as it hikes rates by either 25 or 50 basis points.

While external members Silvana Tenreyro and Swati Dhingra are likely to repeat the calls for no change in Bank Rate they made in December, when the Committee split three ways, Catherine Mann may downscale, arguing for 50 rather than the 75 she advocated at the last meeting. Six members backed December’s 50bps rise to the current 3.5%, and some of these may now shift to arguing for 25bps.

The MPC, having made clear in November that then market expectations for a 5.25% peak in the policy rate were overblown, with Governor Andrew Bailey pointing to an anticipated peak around 4%, looks unlikely to try to “talk to the curve” in February. It made no such attempt in December, when market expectations had moderated to around 4.6%, returning to its policy of eschewing explicit forward guidance other than when expectations become very misaligned with its intentions.

TREND GROWTH

The February Monetary Policy Report will also include a labour market stock take, completing the delayed supply side review, which could see a downgrade in the BOE’s estimate of trend growth from the historically low 1.5% last set in November 2021. (See MNI POLICY: BOE Eyes UK Trend Growth As Labour Force Tightens)

Potential growth is being sapped by hits to labour supply from a decline in the participation rate, restrictions on immigration and long-term sickness. Lower trend growth means the economy would be more susceptible to inflation when it expands.

The MPC’s market rate projections for CPI, last seen heading below target from mid-2024 onwards before sinking to 0.02% at the end of the three-year forecast, are likely to shift upwards in part due to lower market rate expectations and to higher labour market pressures.

MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com
MNI London Bureau | +44 203-586-2223 | david.robinson@marketnews.com

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