Bank of England Minutes Summary: MPC voted 7-2 in favour of keeping rates unchanged at 0.25% as Exp... Is a November hike on the cards?

MPC voted 7-2 in favour of keeping rates unchanged at 0.25% (as expected by 19/20 surveyed analysts)

MPC voted 9-0 in favour of maintaining the stock of corporate and government bond purchases.

MPC view on current market expectations

A majority of the MPC judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflation pressure then, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to to return inflation sustainability to target (key addition). Any increases in the bank rate are expected to be at a gradual pace and to a limited extent.

If the economy progresses as the August QIR forecasts ‘then monetary policy could need to be tightened by a somewhat greater extend over the forecast period than current market expectations

 

GBP impact on inflation

GBP rate has been volatile and the price of oil has increased. With August headline (2.9% vs. BoE view of 2.7%) and core inflation (2.7% vs. BoE view of 2.5%) slightly firmer than expected, Y/Y inflation is expected to rise above 3% in October (Prev. view was to ‘peak around 3% in October). Inflation is expected to overshoot the 2% target over the next three years.

 

UK Economy

Since the August report, the relatively limited news on activity points, if anything, to a slightly stronger picture than anticipated.

Q2 GDP rose as expected (albeit initial estimates of private final demand were softer than anticipated.)

Unemployment rate is a little lower than expected.

Survey indicators are consistent with continued strength in employment growth.

Underlying pay growth has shown some signs of recovery, albeit remaining modest.

Above developments suggest that the remaining spare capacity in the economy is being absorbed at a little more rapidly than expected at the time of the August QIR.

 

Impact of Brexit on GBP

Circumstances since Brexit have been exceptional and monetary policy cannot prevent either the necessary real adjustment as the UK moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years.

In such circumstances, the MPC must balance any trade-off between the speed at which is intends to return inflation sustainability to the target and the support monetary policy provides to jobs and activity.

 

 

14 Sep 2017 - 12:00- Fixed IncomeData- Source: ransquawk

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