BoE rate-setters 'very dovish' comms underline recession fears
This is a very dovish set of communications from the Bank of England, which really hammers home just how concerned rate-setters are with the state of the UK economy and, dare we say it, the possibility of a recession.
Not only did all nine MPC members vote in favour of an immediate cut, but two officials even supported a 50 basis point rate reduction, which is not something that market participants had even remotely contemplated prior to the meeting. Perhaps the biggest bombshell was that uber-hawk Catherine Mann, who we had down as a near certainty to stand pat, sided in favour of a jumbo cut.
The rhetoric on the growth outlook was downbeat, with the sharp downward revision to the 2025 growth forecast a reflection of the growing downside risks emanating from Trump’s tariffs and the government’s hefty business tax hikes. Further cuts are all but certain, and another one in May seems like a pretty safe bet.
Yet, inflationary risks remain and Governor Bailey has stressed that rate reductions will be ‘gradual’.
This could act to limit the degree of easing in 2025, and we think that the sharp sell-off in the sterling today may be slightly overdone.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
