BoE Faces Multi-Faceted Trade-Off To Keep Inflation On Track
- MPC Seen Voting 8–1 to Keep Rates at 3.75% - Energy costs evident in March inflation figures - Bank to look through near-term oil supply worries - February growth data buys rate setters some time - Rate announcement due Thursday at 11:00 GMT/07:00 EST
LONDON - All week, central banks have struck a broadly similar tone: caution amid heightened uncertainty. Economists anticipate much the same from the Bank of England.
Following a two-day meeting, the BoE’s Monetary Policy Committee is widely expected to keep its Bank Rate unchanged at 3.75% when it delivers its decision at midday on Thursday.
Recent commentary suggests an 8–1 vote split in favour of a hold, with the bank’s chief economist, Huw Pill, the likely lone dissenter, voting for a quarter-point hike.
On bank guidance, Bruna Skarica of Morgan Stanley expects a message centred on uncertainty and a readiness to act should second-round effects emerge. “On balance, we see more focus on trade-offs than in March. We see the BoE on hold through this year,” she said.
On lookout for second round effects
The committee last met on 19 March, nearly three weeks into the Gulf conflict involving the US, Israel and Iran. Six weeks on, there is still no resolution, with the Strait of Hormuz—a critical artery for oil shipments—effectively shut.
Last month, the MPC highlighted disruption to energy supply and transportation, warning this would push up household utility bills and firms’ costs—developments that have since materialised to varying degrees.
March inflation data underscored the impact. Headline CPI rose 3.3% y/y, in line with forecasts, with a stronger-than-expected 0.7% m/m gain. Pipeline pressures intensified, with PPI input prices surging on the back of crude oil, while core CPI (ex-energy, food, alcohol and tobacco) edged down to 3.1% y/y.
“Messaging-wise, it is hard to see anything but guidance signalling potential action if second-round effects build,” Skarica added, noting greater emphasis on balancing inflation risks against the growth impact of tighter policy.
The key question, she argues, is not whether inflation will rise following the commodity shock, but whether tightening policy to hasten a return to target is worth the associated hit to growth.
Data trade off
Recent activity data offers the MPC some leeway. UK GDP expanded 0.5% in February, well above the 0.1% consensus, while the three-month growth rate also came in stronger than expected at 0.5%.
However, labour market data points to gradual loosening, with declines in payroll employment and vacancies—the latter at a near five-year low—alongside moderating PAYE pay growth.
George Buckley of Nomura highlighted the importance of this meeting in clarifying the MPC’s reaction function to the US-Iran conflict, particularly its assessment of growth and inflation risks from higher energy prices. “We see no further moves in policy rates this year or next, though risks are skewed to the upside near term and to the downside further ahead.”
Source: Nomura/ Bloomberg
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- MPC Seen Voting 8–1 to Keep Rates at 3.75%
- Energy costs evident in March inflation figures
- Bank to look through near-term oil supply worries
- February growth data buys rate setters some time
- Rate announcement due Thursday at 11:00 GMT/07:00 EST
By Harry Daniels
LiveSquawk News
@HarryDaniels71
29 April 2026 | 11:30 GMT
LONDON - All week, central banks have struck a broadly similar tone: caution amid heightened uncertainty. Economists anticipate much the same from the Bank of England.
Following a two-day meeting, the BoE’s Monetary Policy Committee is widely expected to keep its Bank Rate unchanged at 3.75% when it delivers its decision at midday on Thursday.
Recent commentary suggests an 8–1 vote split in favour of a hold, with the bank’s chief economist, Huw Pill, the likely lone dissenter, voting for a quarter-point hike.
On bank guidance, Bruna Skarica of Morgan Stanley expects a message centred on uncertainty and a readiness to act should second-round effects emerge. “On balance, we see more focus on trade-offs than in March. We see the BoE on hold through this year,” she said.
The committee last met on 19 March, nearly three weeks into the Gulf conflict involving the US, Israel and Iran. Six weeks on, there is still no resolution, with the Strait of Hormuz—a critical artery for oil shipments—effectively shut.
Last month, the MPC highlighted disruption to energy supply and transportation, warning this would push up household utility bills and firms’ costs—developments that have since materialised to varying degrees.
March inflation data underscored the impact. Headline CPI rose 3.3% y/y, in line with forecasts, with a stronger-than-expected 0.7% m/m gain. Pipeline pressures intensified, with PPI input prices surging on the back of crude oil, while core CPI (ex-energy, food, alcohol and tobacco) edged down to 3.1% y/y.
“Messaging-wise, it is hard to see anything but guidance signalling potential action if second-round effects build,” Skarica added, noting greater emphasis on balancing inflation risks against the growth impact of tighter policy.
The key question, she argues, is not whether inflation will rise following the commodity shock, but whether tightening policy to hasten a return to target is worth the associated hit to growth.
Recent activity data offers the MPC some leeway. UK GDP expanded 0.5% in February, well above the 0.1% consensus, while the three-month growth rate also came in stronger than expected at 0.5%.
However, labour market data points to gradual loosening, with declines in payroll employment and vacancies—the latter at a near five-year low—alongside moderating PAYE pay growth.
George Buckley of Nomura highlighted the importance of this meeting in clarifying the MPC’s reaction function to the US-Iran conflict, particularly its assessment of growth and inflation risks from higher energy prices. “We see no further moves in policy rates this year or next, though risks are skewed to the upside near term and to the downside further ahead.”