GBP/USD, EUR/GBP flows: BoE TSC testimony still favouring pause
BoE testimony to TSC very much as expected, overall and by individual
Majority BoE MPC central view remains that tightening from higher mortgage rates, lack of 2nd round impact, soft labour market, all support wait and see, even if inflation risks remain to upside
The BoE are giving testimony to the Treasury Select Committee and so far the tone of comments is largely as expected and in line with both the prevailing majority line and the stance adopted by the individual members present.
Key points mitigating against BoE current action include the fact that the rise in mortgage rates is larger than almost anywhere in G7 (Bailey), wages have come in below expectations since the war and domestic inflation is relatively benign (Ramsden), and evidence of second round effects that would prompt a forceful response is currently scant (Taylor). The more dovish Taylor also sees policy as currently restrictive, already providing insurance against the external backdrop, and not invalidating case for lower rates if uncertainty clears. Bailey also adds the money market curve reflects the market’s 'inflation risk premium’ and that it is not a case of ‘when’ the Bank hikes, there is no predetermined plan.
It is not all relaxed and dovish of course, with upside risks to food inflation, and inflation in general, and the frequency of supply shocks and its ratchet effect also considerations.
The more hawkish Greene remains concerned about the persistence of higher oil prices and how it might impact second round effects down the line.
All in all, all very much ‘in character’ so far and consistent with the broad view that the majority BoE view remains wait-and-see on-hold through this year, unless there are decisive developments either way.
Sterling very unresponsive, as nothing new here. In general terms, the lagging nature of the BoE rates outlook should continue to act as a capping influence.