The Bank of England announcement comes at 1200 GMT, There is no expectations fo change in policy, but nevertheless there is a focus on signalling
- an important one for the signal, or otherwise, that it sends regarding the prospect of a rate increase in May
- We should not look for overly explicit guidance, however. During parliamentary testimony last month, Governor Carney reiterated that the BoE does not commit to a path for interest rates "except in the most exceptional circumstances, which are not the circumstances we are facing today." But whilst nobody expects a commitment, the March meeting would be a good opportunity to further nudge market expectations, perhaps with one or more Committee members dissenting from the consensus view that rates should remain on hold.
- Indeed, the market probability assigned to a May tightening is currently around 70% - broadly where it has remained for the past five weeks. This represents a firm market conviction but we suspect that the BoE would like to see the figure still higher.
- 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. But we do think the MPC will be keen at the very least to preserve, and possibly raise, market pricing for interest rate rises over the Bank's three-year forecast horizon.
- In particular, we think the market is still not pricing in enough of a policy response to deal with the BoE's near-50bp forecast overshoot of inflation relative to target based on unchanged monetary policy.
On the strategy side,
- we assign a 70% probability to the MPC delivering a similar monetary policy statement (MPS) to February, which should leave yields unchanged to perhaps a little higher.
- We assign a 25% probability to it delivering a more hawkish statement - which has been the direction of travel for the past 12 months or so.
- We assign just a 5% probability to it delivering a more dovish statement. N.B. We would not view the omission of "coming months" as a dovish signal.
- Although the next Bank Rate hike is expected at the next meeting in May, alongside the revised forecasts in the Inflation Report, the experience of 2017 was that non-Inflation Report MPC meetings can still generate news.
- With the market having been roughly 80% priced for a 25bp hike in May for a while now, it is likely that the minutes of the March meeting will largely just validate the assessment that, absent a shock in the subsequent inter-meeting period, there will be an increase in May.
- One of the most obvious staging posts for a May hike would be to see the more hawkish members registering a vote to hike early, so we look for Saunders and McCafferty to be the outriders and make it a 7-2 vote split for unchanged policy.
- It does look as though Q1 GDP is shaping up to be slightly softer than the Bank had previously anticipated, but any temporary weather related weakness isn't expected to influence the policy outlook in a meaningful way.