People walk outside the Bank of England in the City of London financial district, in London, Britain, January 26, 2023.
Henry Nicholls | Reuters
LONDON — The Bank of England is widely expected to hold interest rates steady at 5.25% on Thursday, but market observers will be closely watching voting patterns, projections and language for hints about future rate cuts.
The market on Wednesday afternoon was pricing a more than 96% likelihood that the British central bank’s Monetary Policy Committee will leave rates unchanged at their current historically high levels, as recent economic data has been pointing to meaningful progress across the central bank’s three indicators of inflation persistence.
The labor market has shown signs of rebalancing, although the overall trajectory remains somewhat uncertain, while wage growth and services inflation have surprised the Bank’s November projections substantially to the downside, Goldman Sachs economists noted on Sunday.
“We therefore expect a 9-0-0 vote split with no dissents, but the vote split remains difficult to predict given limited recent commentary by MPC members,” Goldman Economist Ibrahim Quadri said, suggesting the three dissenting voices for further rate increases at the December meeting will fall into line.
“In the case of dissents, we think a dovish dissent in the form of [Swati] Dhingra voting for a 25bp cut and/or a hawkish dissent in the form of [Catherine] Mann voting for 25bp hike are possible, but we think hawkish dissents are less likely given that there has been a moderation in underlying services inflation since the MPC’s last meeting.”
The services consumer price index (CPI) annual rate came in at 6.4% in December, a slight increase from the 6.3% of November, but below the 6.9% of September, according to the last data available to the MPC when it made its November projections.
U.K. headline inflation unexpectedly nudged upwards to an annual 4% in December on the back of a rise in alcohol and tobacco prices,…
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