BOE Preview - September 2020: Setting up November

Please see below the September BOE preview including summaries of 18 sell side analysts.

https://emedia.marketnews.com/MNI_BoE_Preview_-_Sep20a.pdf

MNI View:

• We noted in the August BOE review that we thought that the Bank's economic forecasts were too optimistic but that it would take time before the data began to deteriorate. We pointed to the gradual winding down of the coronavirus job retention scheme (CJRS) as the trigger for a potentially significant deterioration in the labour market data and have argued in the past that aggregate hours worked are a better proxy for the state of the labour market than the headline unemployment rate (see our full analysis article here for more). See overleaf for the timetable for CJRS withdrawals. Aggregate hours only picked up very, very gradually in the latest data this week for the period May-July (versus the April to June which included the month of April – the month that contained the depths of lockdown). This appears to be flashing a warning sign that a number of employees are not back to normal levels of work despite the easing of lockdown on "Super Saturday" on 4 July.
• However, there is no urgency for the MPC to act at its meeting this week. QE is set to continue until the end of the year and rate cuts have been talked down in recent weeks by MPC members with the Bank's preferred marginal tools comprising of QE and forward guidance. Financial markets, too, are benign with no sign of gilt markets beginning to become more dysfunctional as they did back in March – auctions and buyback operations are still passing by without revealing too much stress.
• A number of MPC member comments recently have pressed even more so on the downside risks argument that was highlighted in the August MPR. We think that this could well be enough for Saunders to vote for further QE at this meeting but that other members will want to wait until November to vote for an extension to the programme. By then the CJRS programme will have (just) been wound down so there will be more anecdotal evidence of the number of workers who have been laid off. However, even then we will only have had one further labour market update and will have data through to August (and the HMRC payroll data through to September). For this reason we continue to look for a fairly small adjustment to QE in November (GBP25bln would be enough to maintain the current QE pace until the February meeting), with a bigger decision to be made in February 2021 when the outlook for the economy becomes clearer.
• The elephant in the room continues to be Brexit. After gaining little mention in August, the topic has once again moved up the agenda while negotiations and the Internal Market bill have increased financial markets' focus on this issue recently. It is extremely unlikely that at this stage the BOE will explicitly change its assumptions away from stated government policy but there is a chance the risks are discussed.

https://emedia.marketnews.com/MNI_BoE_Preview_-_Sep20a.pdf