TD outline their 3 scenarios for the Bank of England policy meeting today, Thursday, 11 May 2023, with probabilities for each.
TD's base case is given a 70% probability by the analysts:
- The Bank of England Monetary Policy Committee (MPC) hikes 25 bps
- leaves guidance essentially unchanged, though the language around financial and banking sector instability might be a bit softer.
- In doing this, the MPC essentially leaves another 25 bps hike in June on the table. The vote is likely 6/3 for 25/0, with Cunliffe joining Dhingra and Tenreyro in voting for a hold. Inflation projections will probably be tweaked slightly, though this should have limited policy implications given the substantial uncertainty bands around the projections.
- The implication for GBP/USD is a drop of 0.15%
At 20% probability is TD's dovish scanerio:
- MPC hikes 25bps but signals a BoC-style ‘conditional pause’.
- Forward guidance is softened to ‘If there were to be evidence of more persistent pressures, further tightening in monetary policy would may be required’.
- While the latest wages and inflation data came in notably hot, the Committee emphasizes lower inflation expectation, further declines in commodity prices, and uncertainty about financial and banking sector stability as reasons why further rate hikes probably are not required.
- GBP/USD implications is down 0.60%
TD's 'hawkish' scenario, at 10% probability:is
- MPC hikes 25 bps
- but in light of the notably strong wages and inflation data, the Committee reintroduces the guidance that it expects ‘further increases in Bank Rate’ will be required if the economy evolves as expected.
- While the forecasts will likely show inflation being revised down in the long-term, the MPC emphasizes that the upside skew has increased further – necessitating a more aggressive policy response.
- GBP/USD +0.30%
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Earlier:
- Deutsche Bank no longer thinks GBP is attractive. Also, expects a dovish BoE surprise.
- Goldman Sachs expect a BoE rate hike today, and plenty more until 5% terminal rate
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Announcement due at 7am US Eastern time, Bank of England Governor Bailey to speak a halh hour later.
- This snapshot from the ForexLive economic data calendar, access it here.
- The times in the left-most column are GMT.
- The numbers in the right-most column are the 'prior' (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.
