The key takeaway from today’s BoE announcement are:

  • Hawks remained hawks. Ian McCafferty and Michael Saunders voted for rate hikes again.
  • Q1’s slowed down was seen by the MPC as ” in part to have reflected adverse weather in late February and early March.”
  • “Despite the near-term softness, the MPC’s central forecast for economic activity is little changed”
  • “Wage growth and domestic cost pressures are firming gradually, broadly as expected.”
  • “Impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought.”
  • “CPI inflation is projected to fall back slightly more quickly than in February, reaching the target in two years.”
  • “For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”

Taken into account the revised projections, the MPC members are not too concerned with Q1 slowdown, and the impact on growth ahead. Though, inflation could be slowing down more quickly than originally expected, thus giving BoE more room to keep their hands tight.

The condition path showed that the projections took one rate hike this year into consideration, unchanged from February. But the rate hike is more likely to happen in Q3 than Q4 as implied by forward rates. That is, it could happen in August, and it’s earlier November as implied in February’s Inflation Report.

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So, it’s actually still a “hawkish hold”, just less hawkish than some hoped for, but more hawkish than the least hawkish scenario.

And, while it seems GBP is under pressure after the release, it’s so far, holding above 1.3485 against USD and 147.04 against JPY.


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