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Bank of England Policy Rate 5.25% (Consensus 5.25%) in Feb-24

• The Bank of England's MPC has decided to maintain the policy rate at 5.25%, reflecting a cautious and balanced approach amidst a backdrop of improving GDP growth forecasts, a moderating but still tight labour market, and broad-based declines in CPI inflation components.
• The Committee's decision, shaped by the need to manage persistent domestic inflationary pressures against geopolitical risks and market expectations for a declining interest rate path, underscores its commitment to ensuring that inflation returns to the 2% target sustainably over the medium term.
• Future policy decisions will hinge on a careful assessment of evolving economic conditions, including labour market tightness, wage growth dynamics, and the interplay between domestic and global inflationary pressures, with the MPC remaining vigilant and prepared to adjust the policy rate in response to concrete economic indicators.

BoE Backloads Cuts Spilling Out Too Early

• The BoE held the Bank rate at 5.25%, with two favouring a hike and one for a cut. It dropped the hawkish bias, instead focussing on how long to stay on hold.
• Reading between the BoE forecasts conditional on unchanged and market rates suggests the optimal assumption would be to wait longer than priced to cut, then go harder.
• It wants to see the persistent pressures fade, but we expect that to take longer, with the labour market not slackening so swiftly. That delays the first cut to 2025 in our call.

By Philip Rush