Any pause before rates rise again will be short

Governor Carney’s comment that the MPC will decide whether or not to increase Bank Rate in May "conscious that there are other meetings over the course of this year" suggests that he wants to hold off tightening policy until it is clear the recent patch of soft data is indeed transitory. Reflecting his comments, the market-implied probability of a hike in May fell, from over 80% to 55% now. It is rare, but not unheard of, for the Governor to be outvoted. While Carney has never been outvoted, Mervyn King was twice during his time as Governor. With the labour market data remaining firm - headline underlying earnings growth has risen from 2.3% in November to 2.8% in February - we think that a growing number of Committee members will be concerned that the MPC is at risk of falling behind the curve. Whether that will be enough to see three or more members join messers Saunders and McCafferty (the most hawkish members, who backed a hike in March) in voting for a hike in May remains to be seen. But given the activity data should rebound sharply from the effects of severe weather in March, any delay in tightening policy is likely to be short. The big picture is that we continue to expect Bank Rate to rise by more than markets expect.