No material changes from the BoE

The Bank of England has left rates unchanged following the MPC’s June policy meeting, matching consensus expectations and our own pre-announcement call.

As a result, Bank Rate remains at 4.25%, with the BoE seemingly sticking to their one-cut-per-quarter pace of easing for now. Arguably, the accompanying details tilted dovish at the margin, but with little meaningful change in guidance, the readthrough for markets has been limited. Sterling is trading largely unchanged relative to pre-announcement levels, having quickly unwound an initial drop lower.

To us, this market reaction makes sense and largely confirms our base case ahead of today’s rate decision. With Bank Rate expectations largely aligned with prior guidance, there was little reason for the MPC to upset markets, implying we would see no material change in guidance in addition to leaving rates untouched.

That has now been confirmed, with the MPC retaining reference to “a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate”. With few other notable changes in the policy statement, the lack of sterling reaction is understandable.

That said, a 6-3 vote split, with Dhingra, Taylor, and Ramsden all favouring a reduction in rates, is arguably dovish at the margin, with the last of these an unexpected dissenter. But offsetting this, it is also interesting that the “on-hold” majority was represented all together, rather than being split into groups.

This suggests that there may be increasing alignment between the likely median voters and the committee’s hawkish wing. But whether lasts, and what this means for the committee’s central tendency moving forward, remains to be seen.

Commenting in the lockup, Governor Bailey offered little additional information, noting that “Interest rates remain on a gradual downward path, although we’ve left them on hold today. The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation”. All in all, we continue to project a one-cut-per-quarter easing pace absent a significant shift in the macro data, with rate cuts pencilled in for August and November.

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