Softer data probably won’t deter MPC

The recent run of weak data suggests that a hike in Bank Rate, to 0.75% in May, is far from a done deal. But we don’t think that a May hike is now off the table. Some of the unexpected weakening in this week’s activity data reflects temporary factors. And the Monetary Policy Committee (MPC) might judge that upside news on inflation cancels out much of the downside news on growth. Meanwhile, much could depend on how market expectations shape up. If the markets continue to price in a rise, the MPC could take advantage of such expectations to set out on the path of normalising rates. As things stand, then, we still think that a hike in May is more likely than not, although it is now clearly a closer-run thing than seemed likely a week ago.