Photographer: Simon Dawson/Bloomberg

BOE Doves Could Vote for a Rate Cut, Bank of America Says


The Bank of England's three-month unity on interest rates may be about to end, according to analysts at Bank of America Merrill Lynch.

The nine-member Monetary Policy Committee has been unanimous about keeping the key rate at 0.5 percent since February, but Rob Wood and Athanasios Vamvakidis predict at least one will vote to cut next week.

Their analysis follows recent figures showing weak inflation, cooling economic growth and, just this week, worse-than-forecast purchasing managers indexes for April. Those all point to a loss of momentum, partly due to uncertainty surrounding the Brexit referendum.

A number of policy makers, including Governor Mark Carney, have said there's scope to loosen if needed, but the most likely dissenter may be Gertjan Vlieghe. He said in February he's got ``relatively little tolerance'' for downside surprises. 

``Although the BOE has highlighted previously that they intend to interpret any data between now and the referendum with caution, recent releases have been considerably weaker than both we and the BOE were expecting,'' the BofA analysts wrote. ``We believe one or two members may see cutting rates as a sensible insurance policy.''

Scotiabank also signaled the possibility of one policy maker seeking lower rates. While their base-case scenario is for another unanimous vote, London-based economist Alan Clarke wrote in a report Friday that ``our conviction is not that high.'' He puts the chance of a split at close to 50 percent.

Traders are pricing in about a 35 percent chance that the BOE will cut its benchmark rate by the end of the year, according to data compiled by Bloomberg using swaps on the sterling overnight index average.

One reason to think dissent remains a long shot for now is the MPC's decision to take a wary approach to data that may be ``harder to interpret'' because of the uncertainty surrounding the June 23 vote on European Union membership.

Officials will probably "react more cautiously to data news over this period than would normally be the case," the MPC said after its April policy meeting.

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