BoE Preview: Three scenarios and their implications for GBP/USD – TDS

Most of the Policy Summary is unchanged from February. But echoing Pill's recent comments, it adds a line that the majority of the MPC still thinks that rate cuts remain ‘some way off’, effectively ruling out a May cut, and putting June into serious question. GBP/USD +0.50%.

The MPC leaves almost all key guidance unchanged from February's Policy Summary, especially ‘policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates’. There is a very slight marking to market to acknowledge softer underlying inflation data owing to recent downside surprises on inflation, wages, and growth. GBP/USD -0.15%.

The MPC downgrades the February Policy Summary element about underlying inflation to something along the lines of ‘key indicators of inflation persistence have improved in recent months’. Elsewhere, language around policy remaining "restrictive for an extended period of time’ is also adjusted to suggest that the MPC is starting to think more seriously about rate cuts. This scenario effectively is a signal from the MPC that May is a live meeting. Another scenario that drives a similar message would be to see a core Deputy Governor (e.g. Broadbent) vote for a cut. GBP/USD -0.80%.