The Bank of England is set to have its third meeting for the year 2024 on Thursday. This meeting includes the release of the press statement, meeting minutes, and the Monetary Policy Report at 11:00 GMT. Following these releases, there will be a press conference which is scheduled to take place 30 minutes later. It is widely anticipated that there will be no change in the current bank rate of 5.25%. However, market attention will be focused on factors such as inflation projections, voting patterns, and the overall rhetoric delivered at the press conference.
Post the BoE’s meeting in March 2024, economic data has been a mix of positive and negative indicators. While there are signs of growth in the economy during the first quarter of 2024, as indicated by the PMI surveys, the housing sector is also showing encouraging signs despite higher interest rates. However, inflation remains a key concern for the Bank of England. The core CPI indicator has remained above 4% for 28 consecutive months, while average earnings continue to rise at a significant pace. This has led to worries among the MPC members about the sustainability of inflation returning to the 2% target.
Impact of Quarterly Projections
The upcoming release of quarterly forecasts at 11:00 GMT is expected to have a significant impact on market expectations. If there is an upward revision of the inflation outlook, it could challenge the current market expectations and potentially delay any imminent rate cuts. Conversely, a decline in the 2026 inflation forecast below the 2% mark could increase the likelihood of a rate cut in the future meetings.
Some members of the BoE, such as Mann, Haskel, and Greene, have consistently voted in favor of rate hikes since August 2023. However, the recent moderation in inflation has led them to align with the majority view. It is expected that these members will continue to support the majority stance in the upcoming meeting, although they acknowledge the need for further progress on the inflation front.
Given the latest economic developments and the Federal Reserve’s likely reluctance to cut rates in the near future, the BoE does not seem inclined towards a dovish shift. While the market is pricing in a 25bps rate cut by September, inflationary concerns remain a key consideration for the Bank of England. Governor Bailey is expected to maintain a somewhat dovish stance at the press conference, especially if the quarterly forecasts do not show a significant improvement in inflation.
Market analysts are divided on the possibility of a rate cut in June. A clear indication of a rate cut in the June meeting could weaken the pound against the euro, potentially leading to a rally towards the 200-day SMA. On the other hand, if the meeting turns out to be uneventful, the pound may strengthen against the euro, possibly retracing towards the lows seen in early March.
The upcoming BoE meeting is poised to have a significant impact on market expectations, particularly in relation to inflation, interest rates, and exchange rates. The decisions and statements made during the meeting will be closely monitored by investors and analysts to gauge the future direction of monetary policy in the UK.
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