BoE Preview | May 2024

As CPI inflation rose to the upside in March and wage growth and GDP growth were firmer than expected in February, it is hard to convince the MPC members to cut rates at this stage. We do not expect any member to vote for the rate cut, but we doubt a number of policymakers that support the rate cut. The overall estimate is that two members vote for the rate cut: Dave Ramsden and Swati Dhingra.

 

On the inflation front, recent data shows the Consumer Prices Index, including owner occupiers' housing costs (CPIH), rose by 3.8% annually and 0.6% monthly in March 2024, unchanged from February. Headline inflation (CPI) rose by 3.2% annually and 0.6% monthly in March 2024, down from 3.4% in February. Also, the Core CPI (excluding energy, food, alcohol, and tobacco) rose by 4.2% annually in March 2024, down from 4.5% in February.

 

Some significant points that should be considered in the discussion of inflation are service, food, and energy prices. While in the services sector, inflation was still stubborn at 6% in March, with prices particularly hot in bars and restaurants, the largest downward contribution to the monthly change in both CPIH and CPI annual rates came from food, and the largest growth came from motor fuels, with prices rising this year but falling a year ago.

 

On the GDP front, UK GDP rose 0.2% in January, 0.1% in February, and is expected to see another 0.1% growth in March. Additionally, with a 4.2% unemployment level, the number of people working in the United Kingdom dropped by 156 thousand in the three months to February 2024, slipping further from a 21 thousand decline in the prior period.

 

Considering the mentioned data and despite the dovish comments from some policymakers, we believe the BoE will hold the rates unchanged with no clear easing signal. In the March meeting, the BoE also said it would “keep under review for how long the bank rate should be maintained at its current level,” unless there is a shift from that guidance to a clear and distinct easing bias.

 

With expected decisions, GBP will have some support against its rivals, but UK stock markets will not be that happy.