LIVE MARKETS-BoE's dovish vote split hides more nuanced story

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BOE'S DOVEISH VOTE SPLIT HIDES MORE NUANCED STORY

The Bank of England (BoE) 25 bps cut on Thursday was expected, but as they dig into forecasts and minutes, market players have arrived at a more nuanced conclusion.

UBS economist Samuel Adams says the split is the most "striking outcome."

"Two MPC members even voted for a larger 50bps move, including one member who has previously been known for her caution when it comes to easing rates," he wrote in a note.

Indeed MPC member Catherine Mann - in previous times the Monetary Policy Committee member most opposed to slashing the base rate - actually voted for a bigger reduction to 4.25%, surprising investors.

It is the vote split that markets essentially reacted to, according to Investec chief economist Philip Shaw.

"However the nuances are more complex than this, with an inflation projection which is relatively high compared with November and with most members now advocating either a ‘careful’ approach to lowering rates or a (presumably an even slower) ‘cautious’ strategy," wrote Shaw.

Meanwhile, Bank of America read Thursday's news as hawkish rather than dovish, despite the vote split.

"The 7-2 vote itself, taken in isolation, was more dovish than consensus expectations, leading the market to price increasing likelihood of cuts at non-Monetary Policy Report (MPR) MPC meetings in the future. However, the report itself told a completely different story," wrote BofA FX strategists.

They also highlight that most of the MPC remains committed to the gradual path, and forecasts reflect inflation persistence risks.

RBC economists also say the BoE is placing more emphasis on the risks that inflation proves more persistent.

"Overall, therefore the MPC didn’t exhibit the dovish pivot that we thought likely in advance and, if anything, strengthened their ‘gradual’ guidance," they write in a note.

RBC leaves its bank rate call unchanged and looks for three further 25bps cuts this year coming at the quarterly MPR meetings in May, August, and November, expecting a 3.75% rate by year-end.

(Lucy Raitano)

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