Bank of England: To remain on hold after May rate hike - Wells Fargo

The Monetary Policy Committee at the Bank of England has sounded more hawkish in the past month or so according to analysts at Wells Fargo. They look for the central bank to hike rates by 25 bps at its next policy meeting on May 10.

Key Quotes: 

“CPI inflation in the United Kingdom fell from 3.0 percent in January to 2.7 percent in February, which could compel the Monetary Policy Committee (MPC) to remain on hold for the foreseeable future. But the labor market and the broader economy appear to be performing well, and the MPC has sounded more hawkish in the past month or so. We look for it to hike rates 25 bps at its next policy meeting on May 10.”

“The strong payrolls number helped to push the unemployment rate down to 4.3 percent, the lowest rate in 42 years.”

“It appears that the economy  continues to expand at a reasonable rate in the first quarter.”

“The MPC surprised market participants at its last policy meeting in early February when it said that “the UK economy has only a very limited degree of slack,” and that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period” than previously anticipated. In its March policy statement the MPC reiterated its view that spare capacity will be used up by the end of next year. Although the MPC voted 7-2 to keep rates on hold this week, the two dissenting members of the committee presumably voted to hike rates.”

“A few weeks ago we brought forward our expectation of another MPC rate hike, which we had originally penciled in for the August policy meeting, to May due to the more hawkish MPC rhetoric and the incoming data flow. We currently expect that the MPC will then remain on hold until early 2019, but we acknowledge that there is a reasonable probability that it could hike rates yet again later this year. As the MPC itself noted, a major uncertainty facing the U.K. economy remains the Brexit negotiations. If this uncertainty should start to weigh on growth later this year, then the MPC likely will remain on hold after its expected rate hike in May.”