Bank of England March meeting: Rates on holds and some implicit guidance …

Analysts from Rabobank expect the Bank of England to keep rates on hold at the March meeting in a unanimous decision and some implicit guidance that should cement market expectations of a 25 bps rate hike in May.

Key Quotes: 

“The willingness of the MPC to tolerate above-target inflation has diminished now the output gap has narrowed. Even at the current moderate pace of GDP growth, the economy is close to its inflationary ‘speed limit’ of roughly 1.5% growth. Former doves, in particular Vlieghe and Ramsden, have subscribed to this view, signalling a relatively strong unity within the MPC.” 

“We therefore expect two hikes this year: one in May and one in November.”

“As this meeting comes without an Inflation Report and the associated press conference, the focus will be on the statement on monetary policy and the minutes of the meeting. We expect the Bank of England to maintain the Bank Rate at 0.50% in a unanimous vote. We also expect to see some implicit guidance that is likely to cement market expectations of a 25 bps rate hike in May. We expect the MPC to do this by reaffirming the language on earlier and greater, rather than trying something new. Given that the market is already broadly in line with the Bank’s ideas, there is no reason to upset this rather delicate balance.”

“The money market is roughly 80% (or 20 bps) priced for a 25 bps Bank Rate hike at the May meeting and points to another 25 bps hike at the meeting in November. The market remains convinced by the Bank’s determination to hike interest rates, even though there are still some considerable uncertainties regarding the outlook for pay growth and domestically generated inflation and Brexit.”

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