BoE kept Bank rate unchanged

Today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone

The BoE, unsurprisingly, kept Bank Rate unchanged at 5.25% this lunchtime, in line with consensus, and a decision that money markets had fully priced in ahead of the meeting. Nevertheless, the Old Lady took further steps towards delivering the first rate cut of the cycle, with another member of the MPC, Deputy Governor Ramsden, voting for an immediate rate reduction, joining external member Dhingra in such a dovish dissent. Dissent from an internal member, however, is rather rare, and should be taken as a strong signal that the BoE are ready to cut rates, soon. Furthermore, Governor Bailey noted his ‘optimism’ that things are moving in the right direction, while the latest inflation forecasts point towards the 2% CPI target being achieved in the second quarter of this year.

Clearly, this represents a further dovish pivot from the MPC, increasing the likelihood that the first Bank Rate cut is indeed delivered at the next meeting in June. Such a 25bp cut seems unlikely to be a unanimous decision, with some of the MPC’s hawks remaining concerned about inflation persistence, though should be followed by a quarterly pace of easing into the autumn, as inflationary pressures continue to subside, and further labour market slack begins to emerge.

Naturally, the knee-jerk market reaction to the BoE’s decision has been a dovish one, with Gilts rallying, and the GBP finding sellers. Cable, in particular, is likely to remain under some pressure over the medium-term, with the balance of risks to the BoE outlook tilting more dovish than the 50/50 chance markets price of a cut in June, and with the FOMC set to stick with a ‘higher for longer’ policy mantra through to the autumn. The FTSE 100, meanwhile, has printed a new intraday record high, as the love for UK equities continues, and today’s dovish rhetoric provides a further fillip to risk appetite in the London market.