A shop window reflects the Bank of England in the City of London, U.K. (Photographer: Simon Dawson/Bloomberg)

The Rise and Fall of the Bank of England’s May Rate Hike

(Bloomberg) -- Expectations for a Bank of England interest-rate increase on May 10 have gone full circle – from an outside bet to a sure thing and then back again. As investors and banks revise their calls, here’s a look at the key dates in the rise and fall of a monetary-policy tightening in May.

The Rise and Fall of the Bank of England’s May Rate Hike

Nov. 2, 2017: First in a Decade

After a number of false starts and mixed messages, the BOE finally increased its benchmark rate late last year. But it was a dovish hike, with two of the nine Monetary Policy Committee members dissenting and the bank noting “considerable risks” to the outlook. That kept forecasts for more tightening in 2018 in check.

Chance of a May hike: About 45%

The Rise and Fall of the Bank of England’s May Rate Hike

Feb. 8: Inflation Report Jolt

Bets on May soon gathered pace, helped by  upbeat growth and labor-market data. But it was February’s Inflation Report, and Mark Carney’s statement that rates needed to rise “somewhat earlier and to a somewhat greater extent” than previously thought that really solidified investors’ view.

Chance of a May hike: 74%

Feb. 24 to March 19: Beast From the East and Brexit

The Rise and Fall of the Bank of England’s May Rate Hike

Expectations continued to climb in a period that saw the U.K. secure a Brexit transition deal. They remained high even as the country was battered by snow and storms, though the so-called Beast from the East was to come back to haunt investors when its impact eventually became clearer.

Chance of a May hike: Above 80%

March 22-March 29: Fever Pitch

The main message at the March monetary-policy meeting came from the BOE’s silence. Officials acknowledged that markets were pricing in a high chance of a move in May, but made no attempt to question that view. Then policy maker Gertjan Vlieghe added some hawkish comments to the mix and, a week after the meeting, investor expectations peaked at more than 90 percent – the same level they reached the day before November’s hike. 

Chance of a May hike: 91%

April 17-19: Doubts Creep In

The PMI at the start of April hinted at weakness, but this proved a key week. Wage growth including bonuses fell short of expectations, inflation slowed to the weakest in a year and retail sales plunged. At this point, investors had all but given up on two hikes in 2018, but remained confident that May was still on the cards.

Chance of a May hike: 82%

April 19: Carney Weighs In

The Rise and Fall of the Bank of England’s May Rate Hike

That confidence soon expired when Carney used a BBC interview to damp expectations for an imminent interest-rate increase. His comments sent the pound tumbling and turned May from a sure thing to a coin flip.

Chance of a May hike: 48%

April 27-30: The Final Straw

The Rise and Fall of the Bank of England’s May Rate Hike

Just over a week later, in what proved the final nail in the coffin for many investors and economists, the U.K. reported its worst performance since the end of 2012 in the first quarter. While there was some impact from weather, the near stagnation raised questions about the underlying strength of the economy. That left an increase in May – almost locked less than two weeks earlier –  a distant possibility.

Chance of a May hike: 18%

May 1-3: Underwhelming Rebound

Hot on the heels of the growth shock, PMI reports for April suggested that the U.K. saw only a meager rebound at the start of the second quarter. That prompted some of the handful of banks that had stayed firm on their May predictions the previous week to buckle and sent the probability of a rate hike to close to zero. Goldman Sachs changed its call on Thursday, saying recent data has been ``soft enough to shift the MPC’s near-term thinking.’’

Chance of a May hike: Below 10%

The BOE will unveil its policy decision on May 10, with Carney due to hold a press conference 30 minutes after the midday announcement.

To contact the author of this story: David Goodman in London at dgoodman28@bloomberg.net.

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