Russell Silberston, Strategist, Ninety One, shares his thinking on what we might expect to hear today from the Bank of England’s MPC.
“The Bank of England have maintained a tightening bias since August 2021, recently guiding that ‘some further modest tightening in monetary policy is likely to be appropriate in the coming months.’ In the face of an inflation rate expected to be close to 8% in April, they are therefore widely expected to hike Bank Rate to 0.75% this week.
“However, their decisions are getting harder as inflation erodes real disposable income notably. Their decision will therefore rest on whether wages are able to offset higher prices, hence the Governor’s botched attempt to call for wage restraint. To that end, today’s solid labour market report will give the Bank the confidence to follow through on their guidance, as the unemployment rate falls to pre-Covid level despite Omicron and the end of the Job Retention Scheme. One complication is the start of Quantitative Tightening, with the Bank’s balance sheet shrinking by £28 billion, or 3.2% this month alone. On balance, however, with inflation so far from target and the labour market resilient, we are with the majority in expecting another nudge higher in Bank Rate to a level which will match the post GFC high.”