More dovish BoE does not necessarily mean June

The more dovish voting split at the May MPC meeting along with lowered inflation projections (below the target within t wo years ) suggest that the BoE is gearing up to ease monetary conditions. Governor Bailey sounded optimistic that “things are moving is the right direction” and “one cut” “would still leave” the UK “with restrictive monetary policy” . Still t he BoE will remain data-dependent and as such June rate cut is not “a fait accompli ” but simply “ not ruled out”. The next two inflation prints will be less hawkish due to a temporary energy cap reduction and thus should not be decisive for the change in interest rates. Yet, should services inflation subside more than anticipated , or the labour market deteriorate more notably , a June rate cut could be come a preferred option. This week , UK pay growth came in stronger than expected (unchanged at 6% for regular pay, consensus 5.9%) and UK’s unemployment rate , although tick ing higher to 4.3%, remains below the BoE’s medium term equilibrium rate of 4.5%. Also, the f irst estimate of GDP for Q1 came in stronger than anticipated at + 0.6% qoq ( consensus 0.4% ) after -0.3% in Q4 and -0.1 in Q3 , suggesting less urgency to cut rates as soon as in June. As such , we maintain our call for an August rate cut , as we believe that the BoE will need more evidence of easing pressure on wage and service inflation , to alleviate risks of lasting second -round effects .