HSBC warns the Bank of England’s Thursday rate decision could deliver a hawkish split vote, with some members potentially voting for a rise, though sterling upside looks limited with 60bps already priced.
Summary
- HSBC analysts say the Bank of England’s Thursday rate decision could produce a split vote, with some members potentially voting to raise rates rather than hold
- The market consensus is positioned for a unanimous 9-0 vote to keep rates steady, making any dissent a hawkish surprise
- Sterling’s capacity to benefit from such an outcome looks limited, with the market already pricing roughly 60 basis points of tightening by year-end
- The possibility of a hawkish dissent reflects concern among some committee members about inflation risks, particularly as the Iran war threatens to drive energy and import costs higher
Thursday’s Bank of England interest rate decision could deliver a hawkish surprise, with analysts at HSBC warning that the vote may not be the clean 9-0 hold that markets are broadly expecting.
In a note to clients, the bank flagged the possibility that one or more members of the Monetary Policy Committee could break ranks and vote for an outright rate rise, a development that would run counter to the dominant expectation of a unanimous decision to leave rates unchanged.
The dissent, if it materialises, would reflect growing discomfort among some committee members about the inflation outlook, particularly as the Iran war continues to put upward pressure on energy and import costs. The BOE has been monitoring closely the extent to which businesses are passing on higher costs to consumers, a transmission mechanism that Governor Andrew Bailey has previously suggested remains contained relative to the 2022 inflation surge, when prices topped 11%.
Despite the potential for a split decision, HSBC’s analysts are cautious about reading too much into sterling’s prospects. The pound’s ability to benefit from a hawkish surprise is seen as limited, given that the market is already pricing in a substantial degree of policy tightening, approximately 60 basis points by year-end. With that much tightening already in the price, a dissenting vote or two would confirm rather than dramatically shift the market’s existing trajectory.
The more meaningful signal from any split would be what it implies about the committee’s tolerance for allowing war-driven inflation to persist without a policy response. A hawkish minority would keep pressure on the majority to act sooner rather than later if price data continues to deteriorate.
BOE due on Thursday this week, 30 April:
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A split vote would be a modest hawkish surprise relative to market consensus, which has been positioned for a clean 9-0 hold. However, HSBC’s analysts note that sterling’s ability to benefit is constrained by the degree of tightening already priced in, with around 60 basis points of hikes expected by year-end. That leaves little room for an upside repricing in the pound even if one or two members break ranks in favour of a rise. The more significant market read would be what a dissenting vote signals about the committee’s tolerance for Iran war-driven inflation feeding into domestic prices, a dynamic the BOE has been watching carefully. If the split materialises, it would reinforce the hawkish undertone in UK rates markets without necessarily moving sterling materially.
