We do not expect today's BoE meeting to impact GBP greatly

There won’t be any policy action at the Bank of England’s policy meeting today. We also doubt there will be any more concrete guidance about when the next rate increase could come. Financial markets are already taking the prospect of a rate hike in May seriously and we expect the BOE to deliver.

The news on activity in the economy has probably been a little weaker than the MPC had expected in February. GDP growth was revised down in 4Q to 0.4% from 0.5%, while monthly production and construction output data suggest the economy may have lost some momentum at the start of the year.Even before any temporary influence on output from the bad weather, those figures have raised the prospect that growth in 1Q comes in below the 0.4% contained in the February forecast. Such an outturn would also be below the committee’s view of trend grow.

On all measures, both including and excluding bonuses, pay gains have beaten the MPC’s February projections. With the potential for pay growth to be carrying more momentum and the unemployment rate likely to fall further this year, the warning lights around domestic inflation risks are likely to be flashing.

Beyond the data, the news that a Brexit transition deal is likely to be signed at the European Council meeting this week will probably be viewed positively by the MPC. Taking all these factors into account, we expect the committee to vote 7-2 to keep interest rates on hold.

Source: Bloomberg Pro Terminal

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