BOE Seen Voting 9-0 to Hold Rates Before Pivot to May Hike

(Bloomberg) -- Bank of England policy makers will vote unanimously to hold fire this week, but that won’t stop them from increasing interest rates in May, according to economists surveyed by Bloomberg.

The Monetary Policy Committee, setting out their latest decision on Thursday at noon, will vote 9-0 to keep the benchmark rate at 0.5 percent, most economists said. Some expect a few hawkish dissenting votes, though data published Tuesday showing the inflation rate fell more than expected last month may stay officials’ hands.

The percentage of economists predicting a rate increase in May climbed to 54 percent, the latest survey showed. With a move in two months seen as a shoe-in by investors, BOE Governor Mark Carney is unlikely to veer from previous guidance that rates may need to rise at a steeper pace than previously thought to prevent the Brexit-hit economy from overheating. That’s in contrast to the last hike in November, when officials went out of their way to signal an imminent move.

“The MPC will be keen to at the very least preserve, and possibly raise, market pricing for interest-rate rises,” said George Buckley, an economist at Nomura. “We doubt the bank will need to go as far as it did in September, when it felt forced to ‘hand-hold’ the market through a November rate rise.”

Last year a majority of economists didn’t foresee the rate increase until a month before the decision, well after markets had priced it in.

That was the first BOE interest-rate increase in over a decade after inflation accelerated beyond the 2 percent target and output held up better than officials expected in the wake of Britain’s decision to leave the European Union. Investors assign a more than 80 percent probability of a rate increase by May this year, according to money-market data.

The BOE’s decision is taking place amid a flurry of U.K. economic data this week, including labor market and retail sales reports. Inflation figures published Tuesday showed consumer price growth slowed to 2.7 percent in February from 3 percent, as the impact of a weaker currency faded. That still doesn’t take the prospect of gradual rate increases off the table, according to Bloomberg economist Dan Hanson.

There may also be some cheery news on Brexit, which the BOE said last month remains the most significant source of uncertainty over the outlook. On Monday, negotiators reached an agreement for a 21-month transition period that will start when Britain formally leaves the bloc in March next year.

To contact the reporters on this story: Jill Ward in London at jward98@bloomberg.net, Harumi Ichikura in London at hichikura@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, David Goodman

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