April BoE rate cut likely as Sterling takes 'battering' from Mandelson crisis and BoE dovishness

Sterling has taken a bit of a battering in the last 48 hours amid political woes and a dovish Bank of England.

While the razor-thin 5-4 vote in favour of no change at yesterday’s MPC meeting is closer than markets had been expecting, we were far from completely surprised given just how entrenched the hawks and the doves have been in their respective views of late. It was Bailey’s dovish remarks, however, that caught us off guard.

Not only did he signal increased confidence on achieving the inflation mandate, but he also seemingly paved the way for sooner and more aggressive cuts to the base rate this year. It's now merely a matter of timing as to when the MPC will deliver further easing.

While we think that the March meeting is a ‘live’ one, we favour April, as officials should have greater clarity on the progress towards the inflation mandate by then, and a press conference to explain their decision in greater detail. Either way, the prospect of a dovish Bank of England and growing pressure on the prime minister support our recent bearish pivot on the Pound.