Dovish MPC signals a summer rate cut is likely
The Monetary Policy Committee voted to keep Bank Rate at 5.25% at May’s meeting, but it also sent a clear message that a summer rate cut is likely. This could come as soon as June if data on pay and inflation data come in at, or below, expectations.
What you will learn:
- Three points underpin the MPC’s dovish message. Deputy Governor Dave Ramsden voted for a rate cut for the first time. The MPC’s new forecasts showed inflation below target from two years out. And the minutes included new language around the timing of the first cut, referring to considering “forthcoming data releases”. Previously it had not indicated a timeframe.
- The MPC has confirmed our long-held view that the April data for pay growth and services inflation will be key – both will be available before the next MPC meeting on June 20. Whether the first cut comes in June or August remains finely balanced.
- For the time being, our central forecast remains a first cut in June, and a total of 75bps of rate cuts this year. But we will revisit our rate call when the April inflation data is published on May 22.
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