Bank rate held but slowing economy prompts four of MPC to vote for cut

Esther Watt, bond strategist at Evelyn Partners, assesses the Bank of England’s closer-than-expected 5–4 vote to hold rates, the growing probability of a March cut, and how a weakening growth outlook is starting to tilt policy debate toward easing despite sticky inflation.

Esther Watt, bond strategist at wealth management firm Evelyn Partners, comments:

‘The hold was widely anticipated and 98% priced in by the markets but there was some surprise dovishness in the vote. Dhingra, Taylor, Ramsden and Breeden all voting for a 25bp cut, and it was only Governor Andrew Bailey’s swing vote that decided the hold 5-4, when a 7-2 call had been expected by analysts.

‘Mr Bailey cautioned that “judgements around further policy easing will become a closer call” and it’s hard to see how you get a closer call than 5-4 on the MPC without cutting rates. The odds on a March cut have shortened significantly in the light of the vote and some downbeat updates to the BoE’s quarterly updated forecast today.

‘In the seven weeks since the last MPC meeting, economic data has been mixed. While the final read of the third quarter GDP print was confirmed at 1.3%, the labour market continued to show signs of weakness with unemployment holding at 5.1% in the three months to November (5.1% prior, 5.1% surveyed) and private earnings, at 3.6% (3.9% prior, 3.7% surveyed), continued their downward trend. 

‘Consumer prices index inflation, on the other hand, surprised to the upside, at 3.4% (3.2% prior, 3.3% expected), as goods and services inflation both came in slightly higher than anticipated. While market commentators widely expected – following the Autumn Budget – inflation to be revised down in today’s updated forecasts, the outlook for GDP was also revised down and unemployment rate up.

‘That soft outlook on the real economy explains the unexpectedly even vote, with the four doves feeling “upside risks to inflation have diminished”.’