**As seen in Risk In The Week report 03/17/24, subscribe at cablefxm.co.uk/reports
The Bank of England left its key rate unchanged at 5.25% in February, this was in line with economists' expectations. The vote saw two MPC members inclined for a rate hike while another one opted for a cut. The central bank dropped its risk bias for further tightening and said it would review for how long it was necessary to keep rates at current levels. BoE's Governor Bailey said that the central bank needed further evidence before lowering rates. Since the meeting, both core and headline prices missed estimates at 5.1% Y/y and 4.0%, respectively. Also, output data saw the U.K. economy shrinking in December by 0.1%, however, this was better than the consensus forecast of -0.2%. The ONS reported the U.K. economy fell into a technical recession during 2H 2023, more recent data printed an uptick in output as the January GDP rose by 0.2% M/m.
Given the pace of disinflation and wages, the BoE is priced in to cut rates later than both the Fed and the ECB, swaps price in a 56% chance of a rate cut in August and only 60bps of easing in 2024. Analysts at MUFG noted that there was a dovish repricing in U.K. rates after labour market data showed wage rate increases moderating. Furthermore, MUFG warned that there is a good chance that wage increases come below the BoE's forecast of 5.7% 3M Y/y in 1Q, this could take some weight off the central bank's need to keep policy at restrictive levels. MUFG heads into the March monetary policy meeting looking for hints in communication that could point to the potential timing of the BoE's first rate cut.
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