MNI NBH Review - Dec'25: A Noteworthy Addition to Guidance
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Note that we will re-publish this document tomorrow morning to include sell-side views.
Executive summary:
- The December MPC meeting offered no surprises in terms of the rate decision itself, however, as we had deliberated in our preview, there was a slight tweak to the central bank’s guidance.
- Officials highlighted the importance of market stability and repricing effects on the inflation outlook which, together with incoming macro data, will be key for influencing upcoming decisions on the base rate.
- While the changes to this month’s statement are not necessarily dovish in isolation, they are nevertheless notable as until now the guidance paragraph had been left unchanged for all of 2025.
There was no change to the main line of guidance in this month’s policy statement – “a careful and patient approach to monetary policy remains necessary” – but the Bank added that incoming macro data will influence the decisions made on the base rate. In particular, the Bank referred to repricing effects and the stability of financial markets. Our view is that while the changes to this month’s statement and guidance are not massively dovish in isolation, the new additions are nevertheless notable as until now the guidance paragraph had been left unchanged for all of 2025.
This month’s policy statement also included the key highlights from the Bank’s quarterly inflation report – which will be released in full later in the week. December’s staff forecast saw a small downward revision to this year’s average CPI forecast from 4.6% to 4.4%, while the average CPI forecast for 2026 was lowered to 3.2% from 3.8%. The 2027 forecast was nudged slightly higher (to 3.3% from 3%), with average inflation expected to return to target only in 2028. GDP forecasts were revised slightly lower across 2025-2027.
