BoE to hold its fire today - BNPP

Research Team at BNP Paribas explains that there is little doubt that the Bank of England (BoE) will stay on hold in todays meeting.

Key Quotes

“The Bank was in a somewhat tricky spot at its last meeting: growth data had been holding up, prompting increasing market expectations of a hike in 2017, but the Bank was still worried about the potential for the economy to slow. It had to acknowledge better data and bump up its 2017 growth forecast from 1.1% to 2.0%; but to avoid shifting up its inflation profile even further above target, it cut its estimate of the structural rate of unemployment (NAIRU). This allowed the Bank to lean down on its forecasts for wage growth and inflation and to dampen hiking expectations.” 

“In light of the data since that meeting, the Bank should feel that its strategy has been vindicated. There are now concrete signs that the slowdown in consumption expected by the Bank is beginning to materialise. In the two releases since the policy meeting, the services PMI slipped from 56.2 in December to 53.3 in February. Retail sales fell marginally in January following a large fall in December, meaning there has been a sharp drop in the 3m/3m growth rate. This weaker data mean that the BoE is almost certainly going to remain on hold.”

“There will be no new forecasts at the March meeting, but the Bank will probably conclude that its existing forecasts are still broadly on track. It forecasts GDP growth of 2% for 2017 and its forecast path implies growth of 0.6% q/q for Q1. The Q1 forecast is looking a bit optimistic in light of recent data, but following an upward revision to growth in Q4 2016, the Bank is not under pressure to signal a change in its 2017 GDP forecast now. Similarly, the inflation print for January remains consistent with the Bank’s 2.1% forecast for Q1 CPI inflation.”