GBP: BoE hawkish hold risk and data support – Societe Generale

Societe Generale analysts highlight that stronger‑than‑forecast United Kingdom (UK) inflation and PMIs (Purchasing Managers' Index) raise the question of a potential hawkish dissent at next week’s Bank of England (BoE) meeting, even though the house view is for a unanimous hold. They note robust manufacturing and services PMIs, accelerating service‑sector cost inflation, and Consumer Price Index (CPI) at 3.3% year‑on‑year, with the BoE not expecting meaningful near‑term disinflation.

Stronger data challenge dovish expectations

"Above forecast headline inflation (energy led) and impressive gains for both PMIs question whether one of the hawks on the BoE MPC [Monetary Policy Committee] may be inclined to vote for a rate hike. The probability of this happening is low but a hawkish hold could briefly give GBP a shot in the arm, before domestic politics (local elections in May) and seasonality turn the tables on the currency next month. "

"The manufacturing PMI rose to 53.6 from 51.0 (new orders up to 52.6) and services brightened to 52.0 from 50.5 (new orders 50.1). The price components will be looked upon with concern at the BoE, led by the increase in raw material prices in the manufacturing sector. "

"The acceleration in service sector cost inflation was the greatest for a single month since this index began in July 1996. CPI accelerated to 3.3% yoy in March from 3.0% in February. Core dipped to 3.1%. Services accelerated to 4.5% and goods picked up to 2.1%."

"BoE forecasts no meaningful slowing of inflation between 1Q and 2Q and average around 3%. and the unemployment rate decreased by 0.3pp to 4.9%"

"Our house call for next week is 9-0 for no change, and three rate cuts in 2027. Average earnings excl bonuses slowed to 3.8% 3m/yoy in February from an upward revised 4.1% in January. Private sector earnings slowed a smidgen to 3.2% from 3.3% "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)