Bank of England

There is no doubt that the BoE is the most dovish of the three central banks. Wednesday’s comments confirmed this, and rightly so. Andrew Bailey only said there may be more hikes or there may not be. The others are saying there will be more hikes. The world is currently experiencing a reacceleration of growth and sentiment. There is therefore concern this will keep inflation higher for longer than recently expected. In other words, the ‘no landing’ scenario is currently enjoying some time in the sun.

With this in mind, and with UK data also being stronger than feared, markets were probably expecting a recognition of this from Andrew Bailey and a steer towards greater tightening being needed. That we did not get this probably indicates, again, greater dovishness than the other major central banks. Then again, it may be because with around half of all UK mortgages refinancing in calendar 2023 from low rates to higher rates, the BoE is much more worried about the slowdown ahead and so is more focussed than the others on avoiding over-tightening now.

I think the BoE is in the toughest spot of the three central banks, with the UK’s over-reliance on and exposure to housing, along with so many refinancings this year. This is likely to bring about a sharper downturn, sooner, than in the other regions. For this reason, I understand why the BoE is being relatively dovish. However, inflation is still above 10% and so I think this dovishness runs the risk of inflation staying higher than elsewhere, for longer.