MNI BOE WATCH: 25 bps Cut Seen Baked In, Eyes On Guidance

The Bank of England is set to announce a 25-basis-point-cut to Bank Rate to 4.25% on Thursday, with any dissenting votes almost certainly in favour of a larger reduction.

Analysts are divided as to whether a rate reduction this month will be followed by another at the next meeting in June, and the most likely outcome is for the MPC to leave its options open.

But risks around the announcement appear skewed to the dovish side, which could come if either the guidance for “gradual and careful” policy easing were dropped, or if more members called for faster easing in either their votes or in the minutes. The odds appear to be against a hawkish surprise relative to previous policy, as the MPC looks unlikely to back anything that suggests slowing from the current baseline for quarterly pace of cuts.

Most analysts' expectations for this meeting are for a single vote for a 50bp cut, from independent Monetary Policy Committee member Swati Dhingra, who was alone in backing a 25bp cut in March, when the BOE kept Bank Rate unchanged. Catherine Mann, who argued for a 50bp cut in February and then for no change in March, is seen by some as a wildcard, as she has an activist approach to rate-setting and places sizeable weight on financial conditions, which have tightened. (See MNI INTERVIEW: Financial Conditions Back BOE Easing - Aikman). 

INFLATION UNCERTAINTY

Accompanying economic projections may show somewhat lower growth forecasts than at the February forecast round, when growth was already seen as low, at 0.75% this year and 1.0% in 2026. The MPC had already signalled in March that global trade policy uncertainty has intensified and financial market volatility has increased.

The outlook for the MPC’s inflation forecast, which had CPI inflation only returning to the 2.0% target in Q4 2026, is unclear. MPC members have mainly avoided giving clear steers as to their thoughts on the impact of tariffs on inflation, though one member, Megan Greene, has highlighted disinflationary effects.

While dollar depreciation and the relative strength of sterling, along with the lack of retaliation to U.S. tariffs so far, support a near-term disinflationary impact, the difficulty of estimating risks from supply-chain disruption and the frequent shifts in U.S. policy make it unlikely that the MPC will want to say anything definitive. (See MNI INTERVIEW: Central Bank Supply-Chain Data Old, Incomplete)

Governor Andrew Bailey will lead a press conference after the decision, though the Bank's own data shows market reactions come very largely in response to the combined MPC announcement, which will be published at 12:02 local time on Thursday. (See MNI INTERVIEW: Forward Guidance Key Tool However It Is Called)