The Bank of England (BoE) is scheduled to hold a meeting on Thursday this week at 11:00 am GMT. However, the timing of this meeting has posed a challenge for traders due to the ongoing General Election in the country. It is expected that the central bank will refrain from making any major policy changes ahead of the election to avoid confusion. Currently, the market is pricing in less than a 5.0% chance of a rate cut at this week’s meeting, indicating that the Bank Rate is likely to remain unchanged at 5.25% for a seventh consecutive meeting, which is a 16-year high.
Looking ahead, market sentiment is divided for future rate decisions, with the possibility of a hold or a cut in August. However, the consensus leans towards a cut in either September or November. Overall, there is a prediction of -46bps of easing for the entire year, equivalent to just under two rate cuts. It is important to note that Deputy Governor David Ramsden and external MPC member Swati Dhingra previously voted in favor of a 25bp cut, which was largely expected but provided a dovish signal to the market.
In terms of updated BoE projections, inflation and unemployment have been downgraded, while growth has been upgraded. The latest data shows that headline nominal inflation dropped to +2.3% in the twelve months to April, which was lower than the +3.2% recorded in March but higher than the expected +2.1%. Core inflation, which excludes energy and food components, also remained high at +3.9% year on year. Additionally, services inflation came in stronger than expected at +5.9%, a metric closely monitored by the BoE.
The May CPI inflation data is set to be released a day before the BoE decision on Wednesday. It is anticipated that year-on-year headline inflation will slow to +2.0% in May from +2.3% in April, with core inflation expected to decline to +3.5% from +3.9%. While these figures are crucial, they may not sway policymakers significantly, but could lead to a change in language in the rate statement.
SNB Rate Decision
In addition to the BoE meeting, the Swiss National Bank (SNB) is set to announce its rate decision at 7:30 am GMT on Thursday this week. After a surprise rate cut in March, traders are speculating that the central bank might implement another 25bps reduction. The OIS curve indicates a 72% chance of a rate cut, with -18bps already priced in. Any alterations in language or bias during the press conference are expected to attract considerable attention from investors and market participants.