BoE: Mixed messages – Deutsche Bank

Analysts at Deutsche Bank note that the BoE kept rates on hold yesterday as widely expected, but the vote was not unanimous (7-2), with both Saunders and McCafferty dissenting as they did in February.

Key Quotes

“Our UK economists noted that the meeting brought out mixed messages from the BoE. On the one hand, the Bank retained its hawkish rhetoric by remaining relatively upbeat in its forecasts for growth in the medium term and likened the weakening in Q1 to noise.”

“Furthermore, the Bank was relatively sanguine on the softer wage growth to date emphasizing the continued erosion in slack, which will lift inflation in the forecast horizon. On the other hand, the BoE revised down its inflation forecasts both in the short and medium term, while reducing growth this year by 40bps. Later on, BoE’s Carney told the BBC that a rate hike was “likely by the end of the year”.

“Following all the above, the Bloomberg implied odds of a rate hike in the August meeting fell 12ppt to 42%. Overall, our UK team noted that given the lower urgency for a rate hike due to the need for "limited tightening" over the forecast horizon, they see an increase in rates contingent on growth bouncing back and negotiations on the Brexit front staying positive, while their call for an August rate hike stands.”