- Prior 3.75%
- Bank rate vote 5-4 vs 7-2 expected
- Breeden, Dhingra, Ramsden, Taylor voted for a 25 bps rate cut
- “All is going well, there should be scope for some further reduction in the bank rate this year”
- But this does not mean that there is expectation to cut the bank rate at any particular meeting
- On the basis of the current evidence, the bank rate is likely to be reduced further
- Judgements around further policy easing will become a closer call
- The extent and timing of further easing in monetary policy will depend on the evolution of the outlook for inflation
- Full statement
Right off the bat, there are a few changes to the statement to take note of. In December, the BOE mentioned that:
“On the basis of the current evidence, the bank rate is likely to continue on a gradual downward path.”
This time around, they tweaked that ever so slightly to say that:
“On the basis of the current evidence, the bank rate is likely to be reduced further.”
I would interpret that as a slightly more dovish take and the voting split today also reflects that kind of sentiment too. Adding to that, Bailey and Mann (both voted for a hold) note that they are gathering greater confidence on a rate cut. However, they just don’t see enough evidence in that just yet for the time being.
The person to tip the scales typically has been Bailey and he seems to be rather open to the idea of a move in the near future, in saying that “I will go into the coming meetings asking whether a cut is justified”.
Besides that, the BOE has also lowered its inflation forecasts across the board and that speaks to how policymakers are viewing the outlook. Inflation in one year’s time is seen at 1.7% (previously 2.5%). Inflation in two years’ time is seen at 1.8% (previously 2.0%). Inflation in three years’ time is seen at 2.0% (previously 2.1%).
So again, the signs are all pointing towards a convergence in view towards cutting the bank rate further again down the road.
Coming into the decision, traders were pricing in ~36 bps of rate cuts by year-end with the first full 25 bps rate cut seen in July. I would expect those pricing odds to shift a little to reflect a potential move in April or June next perhaps. (Update: Money markets now price in 50 bps of rate cuts by year-end with April now seen as the next timeline for a rate cut)
All in all, every component in the statement language is leaning slightly towards favouring another rate cut sooner rather than later. GBP/USD is now down 0.6% on the day to 1.3565 from around 1.3610 before the decision.
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