Ahead of the Bank of England interest rate decision on Thursday, Jeremy Batstone-Carr, European Strategist at Raymond James Wealth Management, has shared his insights.
The Bank of England’s rate-setting Monetary Policy Committee (MPC) is expected to hold the UK base rate at 3.75% this Thursday, but the decision is unlikely to be unanimous as it was on 19th March. Both Chief Economist Huw Pill and the hawkish-leaning Catherine Mann have hinted that a rate hike sooner rather than later might be required as insurance against both higher headline inflation, and even harder to shift ‘second round effects’.
For the time being, March’s slight moderation in underlying CPI inflation should be sufficient to placate the majority of the nine-person Committee. Governor Andrew Bailey’s commentary has pointed towards wariness on raising the base rate prior to clear data confirmation, although Deputy Governor Sarah Breedon has added her name to the list of those fearing growing price pressures.
The European Central Bank, also due to make its rate decision on Thursday, provided a scenario analysis to accompany and justify its policy stance back in mid-March, and a similar approach from the Bank of England is possible, particularly as doing so would help to place the decision in contemporary context.
Beyond the decision itself and the degree of unanimity on the MPC, the focus will surely turn to the wording of the accompanying statement and on Mr Bailey’s ensuing press conference, with the former sure to evidence rate-setters’ concerns. This means that in addition to monitoring developments closely, the Bank will wish to re-emphasise its preparedness to act as necessary. The degree to which Mr Bailey follows suit should provide a clear indication regarding the tone of the panel’s conversation.
Financial markets have been quick to price in at least two 0.25%-point rate hikes before year-end, and whilst unwilling to pull the trigger pre-emptively, the central bank will want to talk tough, provide itself with optionality and telegraph the possibility of higher rates, should conditions in and around the Persian Gulf remain unstable and unresolved.
