Amid the numerous central bank meetings and geopolitical tensions this week, the Bank of England meets tomorrow and is fully expected to sit on its hands. Consensus and market pricing predict that the MPC will keep the Bank Rate unchanged at 4.25%. This meeting will not include updated quarterly economic projections or a press conference following the release of the statement. Recent data has broadly been on the soft side, with money markets forecasting the next rate cut in August.
Overall, the Old Lady is likely to stick to its previous guidance repeating that a “gradual and careful approach to removing monetary policy restraint remains appropriate”. The vote split is likely to be 7-2 with the majority voting for an unchanged decision and Dhingra and Taylor voting for a 25bp cut. Risks are tilted towards a 6-3 vote split, in which case, the consensus would be turning towards a quicker pace of rate cuts.
Weaker than expected economic data
Since the last meeting in May, data has generally surprised to the downside. Key private sector wage growth has been fallen to around 5%, which is still elevated but roughly half a percentage point below the bank’s most recent May forecast. Weakness in the labour market has become more obvious with employee numbers falling for nine out of the past 10 months at an increasing rate. Growth has been weaker than expected at -0.3% m/m in April and poses a downside risk to the MPC’s projection of 0.1% q/q for Q2 2025.
Today’s May inflation figures further add to the softer picture with the headline slowing to 3.4%.  The all-important service inflation metric came in a touch below expectations at 4.7%, after its high print of 5.4% y/y in April. That increase was largely due to the timing of Easter and an overestimation by the ONS of the increase in road tax and potentially marks the peak in this cycle.
Market reaction
Key for markets and GBP again will be if Governor Bailey and the MPC hint at a quicker pace of rate cuts than the current quarterly pace. Guidance is expected to remain similar to previous, while the vote split is not that meaningful if the five internal members haven’t yet been swayed by the recent weaker data.
Money markets price in a year-end rate of 3.75% so that means two more quarter point cuts are expected. Sterling has struggled this month versus its peers except the greenback, as the data has begun to roll over. EUR/GBP has seen some upside after bouncing off the 200-day simple moving average around 0.8380. The big surprise would be a hawkish message which could underpin some support for the pound in the near term.