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How could the guidance change if there is a cut?

BOE
  • We think that large chunks of the guidance can remain even with a cut to Bank Rate. On a cut, the penultimate sentence of the MPC could be tweaked to something like:
  • “The MPC has judged that the risks from inflation persistence have receded somewhat and it would be appropriate to reduce the degree of restrictiveness of monetary policy. However, monetary policy continues to remain restrictive and will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term.”
  • The final paragraph will of course need to change somewhat to remove the reference to the August forecast round. One option here would be to reference the November forecast round – which would in effect guide expectations that Bank Rate was unlikely to be altered at the September meeting. A more open option would be to replace this reference with wording such as “At forthcoming meetings.”
  • We also think it is likely that the statement will not point towards further cuts at this stage – keeping the language around how long Bank Rate should be maintained at its current level would be less risky for the MPC than changing the language indicating that future meetings would consider rate cuts – wording that may see markets get a little more overexcited about future rate cuts than the MPC would be hoping for.
  • For the full MNI BOE Preview click here.
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