Bank of England Preview

Thursday, 10th May 2018 10:59 - by Rajan Dhall

We would not want to be in the shoes of the MPC right now, as today's announcement will be followed up by a press conference when the media will be asked why the push for a more hawkish stance was initiated in the face of such overwhelming headwinds. 

Clearly inflation was a key issue, and in trying to temper the move above 3.0%, the BoE had to take a cautious approach on using monetary policy to address this.  As ever, many including ourselves had warned of the erratic nature of the Brexit impact on the economy, and the recent data readings have been a major concern, culminating in a Q1 GDP read of just 1.2% vs expectations of an already meagre 1.4-1.5%.  

There will be less focus on the inflation report given we are already easing lower in headline CPI, and as we have seen in the data, higher rates are not necessarily the answer in keeping inflation inside the target range at the expense of growth and expansion at a very difficult time. Even though the Brexit process has some way to go and there are clear benefits for both sides to reach a favourable agreement on trade and the post EU relationship in general, the uncertainty factor has been significantly underpriced in our view, and this has been vindicated in the adjustment lower, but a large part of this has been down to external factors - notably the USD (strength).  

At this juncture, it is hard to see the MPC completely turning tail on their assessment of the economy, and there is every likelihood that a rate hike will be delayed and effectively communicated further down the line.  Weather conditions have been blamed for some of the week numbers seen of late - especially for construction - and we fully expect the MPC to highlight this today.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.