First Signal of BOE Rate Cut, With Dhingra Voting for A Cut
The Bank of England meeting today closed the two-week central bank bonanza, during which we have seen some elevated volatility since we are in a period when central banks are preparing to shift the policy, from extremely accommodative to tightening. The BOE kept the policy unchanged, although we got the first hint on rate cuts.
The BOE turned to the data-dependent rhetoric and moved away from the tightening policy. The bank rate votes were little changed but it was enough to suggest that they are thinking about cutting rates and soon they will give in to the pressure from the softening economy. MPC members Haskel and Mann continue to support a 25 basis point rate rise. Meanwhile, Dhingra voted for a 25 basis point rate drop instead, which is a change from Neutral. He is a dove normally, but if the BOE is going to signal a change, is gonna come through Dhingra first.
The combination of these factors caused GBP/USD to climb from 1.2630 to 1.268, which was helped by comments form the BOE governor Bailey in the following conference. He stressed out that inflation is looking sticky, which provided no indications as to when they would start the easing process.
Monetary Policy Decision by the Bank of England – 1 February 2023
- Bank Rate:
- Unchanged at 5.25%, as expected.
- Previous Rate: 5.25%.
- Vote on Bank Rate:
- Vote Split: 6-2-1 (Haskel and Mann voted for a 25 bps rate hike; Dhingra voted for a 25 bps rate cut).
- Expected Vote Split: 8-1-0.
- Monetary Policy Stance:
- Monetary policy is set to remain restrictive for a sufficiently long period.
- Willingness to adjust policy based on economic data to sustainably return inflation to the 2% target.
- Economic Conditions:
- The labor market continues to ease but remains tight by historical standards.
- GDP growth is expected to pick up gradually.
- Risks and Inflation:
- Risks to inflation are viewed as more balanced.
- Risks around the Consumer Price Index (CPI) inflation projection are skewed to the upside.
- Services price inflation and wage growth have fallen more than expected, but key indicators of inflation persistence remain elevated.
The BOE omitted the following statement: “Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.” It was replaced with the next comment to create a way for a gentler softer wording: “The Committee will keep under review for how long Bank Rate should be maintained at its current level.”
GBP/USD Live Chart
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