BOE - Bank of England

29-OCT-2023

BoE Policy Announcement (Thu): 61/73 economists surveyed by Reuters expect the MPC to stand pat on rates, with markets assigning a circa 90% chance of such an outcome. Expectations for no change follow suit from the MPC's decision in September to pause its rate hiking campaign via a 5-4 vote (dissent came from Cunliffe, Greene, Haskel and Mann) after August CPI data came in cooler than expected with services inflation falling to 6.8% from 7.4% (vs. MPC exp. 7.2%). Since the last meeting, September's CPI data saw headline Y/Y rate hold steady at 6.7%, whilst the services print ticked higher to 6.9% from 6.8%. Nonetheless, expectations are for a step lower in price pressures for the October release as "last year's steep increase in household energy bills drops out of the annual comparison", according to ING; a view which has also been put forward by Governor Bailey. Elsewhere, headline earnings growth in the 3M/YY period to August slowed to 8.1% from 8.5% and the unemployment rate dipped to 4.2% in August vs. the MPC forecast of 4.1%. That being said, due to data collection issues at the ONS, the numbers are being treated with great levels of caution by the market. As such, the lack of notable hawkish developments since the prior meeting will likely see policymakers continue to sit on their hands. In terms of the arithmetic on the MPC, it is a guessing game in trying to gauge the vote split for the decision, particularly given that dissenter Cunliffe is set to be replaced by Sarah Breeden. However, even in the event that all policymakers are in agreement that rates should be held at current levels, the policy statement will likely continue to reiterate that "further tightening would be needed if evidence of more persistent inflation pressures is seen". Looking beyond the upcoming meeting, polling from Reuters suggests that economists expect the first rate cut from the MPC won't come until at least July. For the accompanying MPR, those polled by Reuters believe that inflation will average 2% in 2025, 2.2% in 2025 and with a return to target not coming until Q2 2025. On the growth front, polling suggests that Britain will avoid a recession, but the outlook remains weak with 2024 annual growth seen at just 0.4%.