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There are three things to watch out for from the Bank of England’s interest rate decision and its latest monetary policy report (MPR), reports Simon French, chief economist at City firm Panmure Liberum:
What the qualitative comments from MPC [monetary policy committee] members tell us about whether the disinflation bias remains intact? It probably holds – but a good MPR will always throw up some interesting analysis;
What is the latest estimate for Q2 inflation? A sharp drop from 3.0% YoY to 2.4% YoY will be largely be the result of base effects, and one off policy measures. Any sign of a growing output gap weighing on core inflation forecasts?
Politics could have a big say around the 30 April MPC – coming a week out from the local elections. Does the MPC seek to manage (down) market expectations for a rate cut in Q2, or would it have one eye on the June meeting instead when politics will be clearer (and two more months of CPI data will be available).
The yield gap between two- and 10-year gilts hit the widest since 2018 as a fresh round of UK political turbulence weighed on government bonds.
The 10-year yield rose as much as four basis points to 4.59% at Thursday’s open, pushing the gap over the two-year to 85 basis points.