Sterling dips after 'surprisingly dovish' comms from Bank of England: Next cut due in April

Sterling has taken another leg lower this afternoon following what we see as a surprisingly dovish set of communications from the Bank of England. The razor-thin 5-4 vote in favour of no change is closer than markets had been expecting, hence the knee-jerk sell-off in the pound, but it's far from a complete surprise given just how entrenched the hawks and the doves have been in their respective views of late.

The main takeaway is that the MPC appears increasingly more confident in achieving its inflation goal than at the time of its previous meeting, which could pave the way for sooner and more aggressive cuts to the base rate this year. Governor Bailey’s remarks were particularly upbeat, as he both poured cold water over upside risks to inflation, while saying that disinflation is ahead of schedule relative to the November projections.

It's now merely a matter of timing as to when the MPC will deliver further easing. While we think that the next meeting in March will be a ‘live’ one, we are currently favouring an April cut, at which point officials should have further clarity on the progress towards the inflation mandate, and a press conference to explain their decision in greater detail. Either way, it looks as though we may now get a couple more cuts before the year is out and that justifies our recent pivot to a less bullish view on the UK currency.