BoE is widely expected to keep bank rate unchanged at 0.50%. Asset purchase target will also be maintained at GBP 435B. The expectation of a May hike waned after recent batch of weak data. UK CPI grew merely 0.1% qoq in Q1. April PMIs showed that rebound at the start of Q2 was weak. And, UK CPI also slowed more than expected to 2.5% yoy in March, giving BoE less pressure to hike immediately.
It’s now seen that BoE would delay the gradual tightening of of monetary policy. But interest rates are still on the path of going up. Markets are pricing in around 50% chance of hike by August. But we’d argue that November is a better timing until there is a drastic turn in momentum in the latter half of Q2.
But such market expectations could shift drastically. Firstly, BoE will release the quarterly Inflation Report and we’ll see how the data released in the past three months affect the growth and inflation projections. Secondly, it would be interesting to see if the two known hawks, Ian McCafferty and Michael Saunders, would change their mind and refrain from voting for rate hike again. And turn in the two could trigger steep selloff in the Pound.