The status quo is looming for May 9. The UK economy is starting to show signs of recovery, which could lead to a further acceleration in inflation.
We expect the Central Bank of England (BoE) to keep its key rate steady at 5.25% at its next meeting on May 9. The focus will therefore be on the general tone of the press conference, which could – in addition to the updated inflation and growth forecasts – give implicit signals about the timing of the first rate cut. In principle, the Monetary Policy Committee (MPC) should retain the viscous tone of the March meeting. Since then, inflation has moved as expected and the labor market is showing clearer signs of weakening. Both of these are preconditions for lower interest rates.
But as is often the case, the devil is in the details. Prices of services – particularly sensitive to cost pass-through –, like regular salaries in the private sector, are still increasing by six percent compared to the previous year. At the same time, the economy is starting to show signs of recovery, which could lead to a further acceleration in inflation. Recent comments from the BoE indicate that the committee is just as divided as the data. Some CPM members are confident that the general disinflationary trend remains intact, while others are significantly more concerned. After a rather harmonious meeting in May, these differences should appear more clearly in June. We still believe that a fairly small majority will vote in favor of a first interest rate cut in June, noting that the level of interest rates will then still be restrictive. However, the likelihood of a later start has recently increased, so data dependency remains high.
