LIVE MARKETS-'The sooner, the better' for BoE to cut base rate to 3.5% - MS

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'THE SOONER, THE BETTER' FOR BOE TO CUT BASE RATE TO 3.5% - MS

In a week the Bank of England's (BoE) monetary policy committee will hold its first policy meeting since U.S. President Donald's tariffs roiled markets, meaning any nuances in vote split or wording will be even more pertinent than usual.

So what to expect?

Morgan Stanley agrees with consensus - expecting a 25 bps cut - but thinks at least two MPC members are likely to dissent by voting for 50 bps. And indeed, they strongly feel the BoE should cut rates faster.

BoE Governor Andrew Bailey said last month he is focused on the growth hit from tariffs.

"We think that the term 'gradual and careful' will be removed from the guidance, in order for the BoE to leave itself space to accelerate cuts if needed," write the MS economists and strategists in a note.

Overall MS thinks the BoE should cut the base rate - currently at 4.5% - closer to 3.5%, given the weak labour market, sub-50 PMIs and a possible global growth hit.

"The sooner, the better" they say.

"However, we struggle to see such a pivot from the majority of the MPC as soon as next week."

Their base case for the vote split is 7:2 in favour of 25 bps, with Swati Dhingra voting for a 50bp cut, joined by either Alan Taylor or Catherine Mann.

"We suspect that the most market-moving 50bp voters would be Taylor and Ramsden," they write.

After next week, MS foresees back-to-back cuts through to November for a 3.25% base rate by year end.

(Lucy Raitano)

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