It all seemed to be going according to plan for the Bank of England (BoE), as market expectations gravitated towards an interest rate hike in May, with a probability of over 90 per cent.
That didn't last, however, and now the probability of a UK rate hike has collapsed to less than 20 per cent, representing a substantial fall from the highs of late March.
In my view, one rise is enough in this cycle, as the backdrop for further rate hikes faced significant headwinds. Namely a slowing economy, tough Brexit negotiations, and the rise in inflation that was merely transitory (rather than structural) due to the weakened sterling.
To be candid, we felt raising interest rates any further could be a huge policy mistake.
My out-of-consensus view looked even more unlikely as the BoE communicated in February that another rate hike may arrive sooner than expected. The rationale being that the UK was already growing above its meagre economic potential and so closing the output gap, as well as signs of wage inflation on the horizon.
As it happens, since February there have been clear signs that the UK is growing slower than they expected; highlighted by last weeks GDP figures, which showed the UK economy growing by the slowest since 2012, at a paltry 0.1 per cent.
And weak manufacturing PMI print (53.9 versus 54.8 consensus) indicating that weak data for the first quarter may be extending into the second quarter.
Secondly, the inflation picture looks more benign, at 0.3 per cent lower than their projections in February. And while real wages have crept up, it is doubtful whether this is enough to boost consumer confidence.
So, having raised expectations (not for the first time either), the BoE now finds itself in an unenviable dilemma of “damned if they do and damned if they dont”, which is a horrible predicament for any central bank to find themselves in.
The situation in the UK precisely highlights the difficulty global central banks face with signalling rate hikes in the post-financial crisis era. Remember, it took 12 months before the US implemented its second rate hike in December 2016.
Patience is key for the BoE at this stage, and Id argue that there are lessons to be learned from the US, where the Fed, despite the long pause, has subsequently raised interest rates a further four times with their credibility remaining intact.
We think a pause from the BoE is appropriate, given the domestic backdrop and signs that the frothiness in global GDP may well have stalled, which should provide a supportive backdrop for UK fixed income assets.
Nevertheless, we approach next week unable to rule out a rate hike completely.
A May hike would represent a policy mistake, and unless accompanied by a markedly dovish tone, would also raise questions about the BoEs credibility which is just about intact. For now.