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

Economists at TD Securities discuss the Bank of England Interest Rate Decision and its implications for the GBP/USD pair.

Hawkish Hold (20%)

The MPC delivers a hold in a 6-3 vote, with three hawkish dissenters. While most of the language in the statement is kept the same as in November, the MPC makes an effort to push back against market pricing for cuts by May. In particular, the MPC makes clear that given the particular uncertainty surrounding UK data at the moment, policymakers will lean on doing too much rather than too little on tighter policy, and that cuts will only come once inflation has fallen close to the 2% target. GBP/USD +0.35%.

Neutral Hold (70%)

The MPC delivers a hold and keeps its guidance virtually unchanged. In particular, it repeats that ‘further tightening in monetary policy would be required’ if there were evidence of more inflationary pressures. The vote is 7-2, with two hawkish dissenters favouring a 25 bps hike. The MPC does not explicitly push back against markets' aggressive pricing for cuts, but is careful not to give any indication that it supports this market narrative. GBP/USD -0.10%.

Dovish Hold (10%)

The MPC delivers a hold, as expected, but in a dovish 8-1 vote as it acknowledges a constructive deceleration in wage and inflation momentum. The statement says that the evidence is now starting to build that inflation has clearly turned a corner. Moreover, while the MPC does not explicitly endorse market pricing for cuts, it does little to suggest to markets that pricing has gone too far – which markets view as an endorsement of the view that heavy rate cuts will come as early as 24Q2. GBP/USD -0.50%.