Bank of England Preview: slight dovish shift in the MPC amid rapid disinflationary trends. Bank of England Preview: slight dovish shift in the MPC amid rapid disinflationary trends. Bank of England Preview: slight dovish shift in the MPC amid rapid disinflationary trends.

Bank of England Preview: slight dovish shift in the MPC amid rapid disinflationary trends.

Bonds
Althea Spinozzi

Head of Fixed Income Strategy

Summary:

- The Monetary Policy Committee (MPC) is expected to maintain the Bank rate at 5.25%, monitoring incoming data for future policy guidance.

- A potential shift towards a more dovish stance may be indicated by MPC's voting distribution, with expectations of a vanishing hawkish bias at the May meeting.

- The market anticipates rate cuts totaling 63 basis points by December, potentially beginning in August, with a 38% chance of a rate cut in June.

- Ten-year Gilt yields are likely to remain rangebound until disinflationary trends are confirmed.

What to expect from this week’s Bank of England Bank rate decision?

The Monetary Policy Committee (MPC) is anticipated to maintain its stance from February, keeping the Bank rate steady at 5.25% while closely monitoring incoming data to guide future monetary policies.

However, a potential shift towards a more dovish outlook may be indicated by the MPC's voting distribution. In February six MPC members opted to maintain rates, while two voted for a hike and one for a cut. It's expected that at this week’s meeting, the hawkish bias might soften further, with Mann remaining the sole advocate for a rate hike, and Dhingra leaning towards a rate cut.

Recent data from the last monetary policy meeting suggests a slight easing in price and wage pressures. The unemployment rate saw a slight uptick from 3.8% in December to 3.9% in January, while wage growth unexpectedly slowed, with the 3-month average earnings dropping to 5.6% from 5.8% in January, contrary to the consensus expectation of 5.7%.

Although February inflation data will be released one day before the BOE meeting, projections continue to indicate strong disinflation momentum, with headline CPI expected to decrease to 3.5% from January's 4%, and core CPI to fall to 4.6% from 5.1%. Consensus forecasts still suggest a drop in inflation to 1.8% in the second quarter of the year, driven by base effects from last spring's energy prices. Concurrently, expectations persist for a modest recovery in the UK economy, supported by expansion in composite and service PMIs. This resilient growth trajectory is likely to enable the BOE to maintain its highest policy rates in sixteen years for an extended period.

It's worth noting that this meeting will not include updated forecasts or a press conference following the MPC statement release, putting the spotlight on the May meeting for economic projection updates.

Market expectations currently reflect a projection of 63 basis points of rate cuts by December this year, potentially commencing in August, with a 40% chance of a rate cut as early as June. Anticipations for a June rate cut may rise further as disinflationary trends intensify, leading to an overall expectation of rate cuts totaling 75 basis points for the year. This scenario supports a moderate extension in duration.

Ten-year yields: what’s next?

Ten-year Gilt yields may be caught rangebound between 3.95% and 4.25% until the disinflationary trend is confirmed. If ten-year yields break below 3.95%, they will find support next at 3.75%.

 

Source: Bloomberg.

Other recent Fixed Income articles:

18-mar FOMC Preview: dot plot and quantitative tightening in focus.
12-Mar US Treasury auctions on the back of the US CPI might offer critical insights to investors.
07-Mar The Debt Management Office's Gilts Sales Matter More Than The Spring Budget.
05-Mar "Quantitative Tightening" or "Operation Twist" is coming up. What are the implications for bonds?
01-Mar The bond weekly wrap: slower than expected disinflation creates a floor for bond yields.
29-Feb ECB preview: European sovereign bond yields are likely to remain rangebound until the first rate cut.
27-Feb Defense bonds: risks and opportunities amid an uncertain geopolitical and macroeconomic environment.
23-Feb Two-year US Treasury notes offer an appealing entry point.
21-Feb Four reasons why the ECB keeps calm and cuts later.
14 Feb Higher CPI shows that rates volatility will remain elevated.
12 Feb Ultra-long sovereign issuance draws buy-the-dip demand but stakes are high.
06 Feb Technical Update - US 10-year Treasury yields resuming uptrend? US Treasury and Euro Bund futures testing key supports
05 Feb  The upcoming 30-year US Treasury auction might rattle markets
30 Jan BOE preview: BoE hold unlikely to last as inflation plummets
29 Jan FOMC preview: the Fed might be on hold, but easing is inevitable.
26 Jan The ECB holds rates: is the bond rally sustainable?
18 Jan The most infamous bond trade: the Austria century bond.
16 Jan European sovereigns: inflation, stagnation and the bumpy road to rate cuts in 2024.
10 Jan US Treasuries: where do we go from here?
09 Jan Quarterly Outlook: bonds on everybody’s lips.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.