BoE: Consensus is for no change in policy – Deutsche Bank

Bank of England decision is due out at 12pm GMT today and the consensus is for no change in policy while market pricing also assigns a low 16% probability of a hike, suggests the research team at Deutsche Bank.

Key Quotes

“The bigger question is whether or not we see a more hawkish BoE centre in light of yesterday’s stronger than expected wages numbers. Indeed, pricing for a May hike is over 80% and our UK economists yesterday changed their view to a rate hike (from a hold) for two months’ time. Yesterday, weekly earnings were reported as rising one-tenth to +2.6% yoy in the three months to January, while the broader measure of earnings jumped to +2.8% yoy, beating consensus by two-tenths. In addition, yesterday we had the announcement that the NHS is lifting the pay cap on staff with a 6.5% salary increase agreed over three years.”

“Gilts were well offered as a result with the 10y rising +4.1bps yesterday and to the highest in four weeks while Sterling jumped +1.02%. It’s worth noting that regular wage growth is now broadly in line with the BoE forecast which we’d imagine will give the MPC some confidence. As a reminder, the BoE expects wage growth to reach 3% by the end of Q1. Our economists note that wage growth has only ever reached 3% once in the last nine years so this seems ambitious although base effects do lower the bar needed this quarter.”