MPC vote - analysts react

"May’s edition of ‘Super Thursday’ was unusually low-key, with the MPC making only minor changes to its forecasts and giving a clear impression that it is likely to remain firmly in ‘wait-and-see’ mode for some time yet. However, the Committee was keen to send a message that, assuming its baseline forecast plays out and Brexit is “smooth”, it believes that markets have become too bearish about the likely path of interest rates towards the end of the forecast horizon. This is consistent with our long-held view that after a first hike in H2 2019, rates will rise by 50bp a year thereafter." - Andrew Goodwin, Oxford Economics

"The Bank of England’s May Inflation Report lends some support to our view that interest rates are set to rise sooner than markets expect. Admittedly, no other members joined Kristin Forbes in voting to raise interest rates [...] And the MPC also revised its GDP growth forecast for this year down slightly, from 2% to 1.9%, while its inflation forecasts were largely unchanged. This perhaps explains why the pound fell after the release of the Inflation Report and minutes." - Paul Hollingsworth, Capital Economics

"The Bank of England’s May Inflation Report lends some support to our view that interest rates are set to rise sooner than markets expect. Admittedly, no other members joined Kristin Forbes in voting to raise interest rates – some had speculated on the basis of a recent speech that Michael Saunders might also vote for a hike. And the MPC also revised its GDP growth forecast for this year down slightly, from 2% to 1.9%, while its inflation forecasts were largely unchanged. This perhaps explains why the pound fell after the release of the Inflation Report and minutes." - Tom Stevenson, Fidelity International

"Overall the forecasts are not a lot different from February. The Bank seems to think there will be a bit extra inflation this year and a bit less growth as price growth crimps consumer spending. Those soggy Q1 numbers clearly made an impact on policymakers. Today’s weak trade balance and industrial numbers also indicate that the UK economy is beginning to falter. Combined those with the Q1 growth numbers and there is a sense that while resilient, the economy resembles a slowly deflating balloon." - Neil Wilson, ETX Capital

"Revisions to the MPC’s forecasts suggest that it thinks the case for raising interest rates to cool inflation has weakened since its last Inflation Report. The Committee revised down its forecast for GDP growth this year to 1.9% from 2.0%. And while it nudged up its forecast for GDP growth in 2018 and 2019 by one-tenth to 1.7% and 1.8%, respectively, it warned that these projections assumed a "smooth" Brexit transition. The risks to these growth projections, therefore, lie mainly to the downside. Meanwhile, signs that higher import prices are filtering through to consumers sooner than the MPC had anticipated has compelled the Committee to revise up its forecast for CPI inflation this year to 2.7%, from 2.4% previously. Crucially, however, it reduced its forecast for inflation in 2018 and 2019." - Samuel Tombs, Pantheon Macroeconomics

"The Bank of England has made some fairly optimistic assumptions regarding UK growth and the return of wage inflation. As the Bank recognises, however, these are based on the UK's exit from." - Alix Stewart, Schroders

"Today the MPC introduced a very slight tightening bias saying, “If the economy followed a path broadly consistent with the May central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections.” However, and crucially, the BoE revealed that its forecasts are conditioned on the assumption that “the adjustment to the United Kingdom’s new relationship with the European Union is smooth” ; that is, it assumes a transition period. A transition (or implementation) period is, of course, highly uncertain. As Carney himself said, “it’s early days". - Daniel Vernazza, UniCredit Research