BoE: Policy pause seen as restrictive – Standard Chartered

Standard Chartered strategists Christopher Graham and John Davies expect the Bank of England (BoE) to keep the base rate at 3.75% at the 30 April meeting, with a prolonged pause through this year. They note that current policy is still restrictive, and that a weaker macroeconomic backdrop, softer labour market and limited fiscal support differentiate this cycle from 2022 and support a wait-and-see stance.

BoE seen on prolonged policy pause

"The Bank of England (BoE) is likely to keep the base rate on hold at 3.75% at its 30 April policy meeting."

"While it would not be a huge surprise to us if one or two members of the Monetary Policy Council (MPC) shifted towards voting for a rate hike, we think most members will want to wait and see how the situation in the Middle East – and energy prices – evolves."

"Governor Bailey is likely to reiterate that there would be no rush to judgement given the degree of uncertainty and the opposing risks to inflation and growth, but he may indicate that the longer the conflict drags on, the greater the risk of possible tightening."

"Our base case is that the BoE will be on a prolonged pause this year as the MPC tries to look through the energy price spike, confident that rates as they stand remain restrictive and that the macroeconomic backdrop is very different to 2022."

"Instead, we think the 2011 period offers a better – albeit far from perfect – analogy, when oil prices surged beyond USD 120/bbl, leading to consumer price inflation pushing beyond 5% but the BoE opting to keep rates steady."

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