Here's What the Bank Of England Could Do On Rates

We’re expecting a few sort of changes from March if you like. So the first is the vote. We think Dave Ramston could well go for a go for a cut and that follows his his pretty dovish speech that he gave in at the end of April. We don’t think they’re going to change their guidance though I wouldn’t discount it in the slightest. If you remember back to March they they shifted the the wording of the guidance to suggest that they could ease policy but at the same time keep it restrictive, which is already important. Point that they’ve been emphasizing and the final thing we’ll be looking at this time around particularly is the forecasts. So where where inflation is at two and three years, in two and three years time. Remember the bank, the way it does its forecast is it takes the market curve, puts it into the forecast and where inflation is at two and three years ahead tells you whether they believe the curve or whether they think it’s too high or too low depending on where inflation is. So I think the message is that the market curve is too hawkish and that there could potentially be a little bit more easing than the market is pricing this year. And the markets currently pricing about 50 basis points of cuts. OK. So that’s potentially somewhere to look out for in signals as well. And we’ve been reporting to on the story around the think tank Nisa weighing in on on tax cuts. Anisa’s forecast, which is a similar model to the Treasury, showing pre election giveaways won’t be possible and in fact Hunt will have to do more to balance the books. Does that come as much of a surprise? It doesn’t and we’ve we’ve spoken about this before, haven’t we, that the OBR is quite optimistic about the pickup in particular productivity growth. And when you look at the banks forecast today, you know I know they’re they’re conditioned on the market curve that they may or may not agree with. But their their view is that trend growth in the economy is 1/1 and a bit percent. Our view is something similar, the OBR is much higher. So it’s up at 1.7%. Now that doesn’t sound like a huge difference, but when you accumulate it over a five year period. It, it adds up to a lot in terms of fiscal numbers and you’re sort of talking if you the difference between 1.7% growth every year and 1.2% growth every year, you’re looking at a gap of maybe £40 billion by the end of the the forecast period, the OBR forecast period which is five years. So it’s a big, you know, it could be a very big number. All of that said, of course we know that they, the government, can play with the assumptions around what they assume about spending. You know, this idea of fiscal fiction that’s made its way into the press. And we know that they can massage the numbers to Createspace to do these tax cuts. Whether it’s sustainable or not is obviously a completely different question and and for me it’s just not.