BOE - Bank of England

14-JUN-2024

BoE Announcement (Thu):

Expectations are for the BoE to hold the Base Rate at its current level of 5.25%, according to all 65 analysts surveyed by Reuters with markets assigning a circa. 10% chance of such an outcome. As a reminder, the prior meeting saw Ramsden join Dhingra in calling for a 25bps cut, whilst the accompanying policy statement reiterated guidance that monetary policy needs to remain restrictive for sufficiently long. Since the prior meeting, headline inflation in April slipped to 2.3% from 3.2% (driven lower by declining gas and electricity prices), core declined to 3.9% from 4.2% and services ticked lower to 5.9% from 6.0% with the latter being a disappointment relative to the MPC's forecast of 5.5%. In the labour market, the unemployment rate nudged higher to 4.4% in the 3M period to April, whilst headline earnings growth remained sticky at 5.9% in the 3M/YY period to April. PMI metrics for May saw the services print slip to 52.9 from 55.0, and manufacturing rise to 51.2 from 49.1, leaving the composite at 53.0 vs. prev. 54. Rhetoric since the prior meeting has been lacking due to the purdah (pre-election) period inflicted by the UK general election. However, in the aftermath of last month's decision, Chief Economist Pill remarked that it is not unreasonable to believe that over the summer, the BoE will see enough confidence to consider rate cuts, adding that they could cut and keep the stance restrictive. Overall, given the worse-than-expected outturn for services inflation in April, the MPC is expected to hold fire on policy. As such, the focus will be on any tweaks to existing guidance on rates, however, at the time of writing there is not much to signal that the MPC will have enough confidence to do so – this could change however following the May CPI data due the day before the release. In terms of market pricing beyond next week, a September reduction is priced at around 85% with the first cut not fully priced until November and a total of 41bps of easing seen by year-end.