The Bank of England’s Monetary Policy Committee sprang no surprises with today’s decision to hold Bank Rate steady for the seventh straight meeting, with such a decision having been fully discounted by money markets prior to its announcement.
The unchanged split 7-2 vote, with Dhingra and Ramsden again favouring an immediate 25bp rate cut, also came as little surprise, with information since the May meeting having given policymakers little reason to significantly alter their stance over the last six weeks.
Reflecting this, the accompanying policy statement – unsurprisingly – was largely a ‘carbon copy’ of that released after the aforementioned May meeting. It was, however, noteworthy that the decision not to cut was described as “finely balanced” for some members of the Committee, heightening the chances of a cut next time around.
Of course, this decision comes despite data yesterday showing headline inflation falling back to the BoE’s 2% target in May, for the first time since mid-2021.
While this is a positive development for policymakers, the print masks continued signs of underlying inflationary pressure, particularly with services CPI continuing to run at a punchy 5.7% YoY, considerably above the Bank’s 5.3% forecast.
This, coupled with earnings growth continuing to run close to 6% YoY, and today’s decision falling just 2 weeks before the country heads to the polls in the ‘snap’ general election, makes the Old Lady’s choice to stand pat on policy a logical one, even if the MPC note that politics are “not relevant” to this month’s decision.
Nevertheless, the next move in Bank Rate remains likely to be a cut, probably at the next meeting in August, as the MPC continue to “keep under review” how long to maintain the current level of restriction. Such a cut, however, hinges on the disinflation process continuing, and the June CPI figures not bringing any nasty surprises.
That said, such a cut is unlikely to be a unanimous decision, with the MPC’s hawks likely still concerned about intense earnings pressures, and sticky services prices. These concerns should, more broadly, see the pace of policy normalisation after the first cut remain relatively gradual, with just one further 25bp cut, probably in November, the base case for the remainder of 2024.
From a markets perspective, such a pace of easing, if delivered, would see the BoE normalising policy at a rate roughly equivalent to that of G10 peers, likely insulating the GBP from any significant medium-term headwinds, at least those stemming from a policy perspective.
