The Bank of England (BOE) on Thursday left its policy rate on hold today at 0.75%, as expected, but surprised markets with a 7-2 vote split.
Essentially, there wasn’t a single additional vote for a rate cut compared to November and December, which was somewhat surprising and made the BOE look hawkish, as a number of policymakers made dovish comments earlier this month,
Even so, analysts at TD Securities have maintained their call for a rate cut in May, as they think the decision to remain on hold was mainly based on the premise that the bounce in the survey data will lead to a substantial improvement in the hard data.
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We’re sceptical, however, that we’ve seen the end of business uncertainty due to Brexit, with the battle around trade negotiations set to start flaring up as soon as next week, with a major speech from PM Johnson as well as the publication of negotiating priorities by the EU. So any bounce in business sentiment may be fairly short-lived.
Furthermore, we see substantial downside risks to the BoE’s near-term inflation forecasts. So that should set up for further easing in May, with sentiment falling back again and inflation disappointing.
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