UK: BOE: Rates Held At 4.5% In 8-1 Vote
The BOE MPC voted 8-1 to hold rates at 4.50%, with Dhingra voting for a 25bp cut (versus 50bp in February) and the activist Mann back to voting for unchanged rates.
- The vote split was somewhat of a surprise, with 13/19 sell-side analysts whose previews we read looking for a 7-2 vote coming into the decision.
- The guidance language in the MPS was materially unchanged to February, with the MPC advocating a "gradual and careful" approach to further easing. Rates will continue to remain "restrictive for sufficiently long", with the appropriate degree of restrictiveness determined at each meeting.
- In a press statement provided to reporters in the lockup, BOE Governor Bailey said rates are still on a "gradually declining path".
- The MPC noted that news since the February decision had been "mixed", but taken together were "broadly in line with expectations" at the time of the Feb MPR. Bank staff have revised their Q1 '25 GDP growth expectation to 0.25% from 0.1% in February, while CPI is still seen rising to around 3.75% in Q3 25.
- From the Minutes, the MPC "was likely to consider scenarios for the risks around medium-term inflation, building on its recent deliberations": One scenario examining longer-lasting weakness in demand relative to supply (in part due to global and domestic uncertainty), and one examining more persistent domestic wage and price pressures.
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SWEDEN: January Inflation Details Underscore Market Pricing For A March Pause
Although basket re-weighting effects played a role in pushing Swedish January CPIF ex-energy above consensus and Riksbank forecasts, there was enough strength in underlying price pressures to support market pricing, which assigns a ~25% implied probability of a 25bp cut in March (according to latest estimates from SEB).
- On a seasonally adjusted basis using the X-13 methodology (and data going back to 1995), CPIF-ex energy prices rose 0.71% M/M, the highest reading since February 2023. Sequential strength was more pronounced in goods ex-food (0.98% M/M) than services (0.71% M/M).
- 3m/3m seasonally adjusted CPIF-ex energy inflation momentum rose to 3.11% (vs 2.50% prior).
- Meanwhile, the proportion of sub-components with annual inflation rates between 1-3% fell to 17% from 21% in December.
- Basket re-weighting effects pushed up the January CPIF ex-energy monthly reading by 0.21pp (above consensus estimates), while the annual rate is expected to be pushed up by 0.31pp on average across 2025.
- The Riksbank have been cognizant of increases in expected prices and PPI in recent months. The January CPI report may be an early indication of feedthrough into consumer prices.
- However, we don’t expect the Board to overreact to one month of data. In a recent speech, Deputy Governor Per Jansson said that “if confidence in the inflation target is high, it is also possible to allow slightly larger and slightly longer deviations from the target without monetary policy having to react fast and forcefully”. Inflation expectations data due tomorrow is expected to reaffirm medium-term confidence in the target.
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MNI EXCLUSIVE: NIESR's Stephen Millard talks to MNI about R*
NIESR's Stephen Millard talks to MNI about R* and the BOE's new estimates of the neutral rate of interest. -On MNI Policy MainWire now, for more details please contact sales@marketnews.com
