**As seen in Risk In The Week report 03/17/23, subscribe at cablefxm.co.uk/reports
Back in February, the BoE raised the Bank Rate by 50bps to 4.0%, this was in line with market expectations. The decision’s statement made it clear that inflation risks remained skewed to the upside, however, the central bank revised its growth outlook to expect a shorter and shallower recession. The February MPR pencilled growth contracting by 0.50% in 2023 and by 0.25% in 2024, inflation was projected to decelerate to 4.0% in 2023 and to 1.50% in 2024, this would leave prices above the central bank’s target by end of the year. We remind you that we’re set to see February consumer prices before the BoE’s monetary policy meeting, the median consensus expects headline prices to accelerate by 9.8% Y/y. On this, the BoE said that if inflation remains persistent, then it stood ready to provide further tightening to bring prices back to the 2% target. Heading into the March BoE’s policy decision, we have seen consumer prices rising by a double-digit pace while the economy grew 0.3% M/m in January vs the median consensus of 0.1%, Q4 growth came in unchanged from the prior. As of time of writing, the market is pricing an additional 19bps of tightening by June, this is a reduction from 50bps just a week ago. The recent developments in financial markets have brought a dovish re-pricing for DM central banks. Economists at ING noted a slowdown in the three- month moving averages in U.K. wage data, they said this is an encouraging sign that wage price growth has finally peaked. They added that this is paired with a slowdown in core services prices and uncertainty from the global banking sector, which makes the BoE’s call more complicated. ING sticks to their 25bps rate base scenario, however, they said that the probability of a “no change” outcome has risen significantly. The desk at Danske Bank joins expectations of a 25bps rate hike given the latest economic data which supports the case for a move. Looking ahead, Danske says this would be the BoE’s final rate hike before turning into a wait and see approach. Finally, they do not see the BoE cutting rates until next year.
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