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-BOE MPC Vote 7-2 For Unchanged Policy; McCafferty, Saunders Backed Hike
By David Robinson
LONDON (MNI) - The Bank of England Monetary Policy Committee (MPC)
voted seven-to-two for unchanged policy at its May meeting with two
external members, Ian McCafferty and Michael Saunders, both backing a 25
basis point hike.
The Bank's May Inflation Report (IR) projections showed headline
CPI inflation returning to the 2.0% target by the third quarter of 2020
conditioned on a market path for three 25 basis point rate hikes over
the next three years. The IR projections pointed to gentle tightening,
with only one hike this year. The market curve had Bank Rate rising
to 0.7% from its current 0.5% in the third quarter of this year.
All the dissents in recent years in favour of higher Bank Rate have
come from the external members on the MPC, rather than the senior BOE
officials on the committee - the insiders. The May meeting extended this
trend with Governor Mark Carney and his four fellow insiders all
In the February Inflation Report the profile showed CPI drifting
back slowly towards the 2.0% target over the three year horizon, but the
May one showed it hitting 2.0% in Q3 2020 and staying there, coming in
at 2.01% in Q4 2020 and at 2.0% in Q1 2021 and Q2 2021.
The lower inflation profile was largely due to the Bank, like the
Office for Budget Responsibility, changing its assumption to now predict
that the pass through from sterling's post-Brexit vote depreciation will
be less prolonged than previously thought.
The BOE's growth forecast for 2018 was lowered to 1.4% from 1.8%
because of the unexpectedly weak 0.1% quarter-on-quarter Q1 outturn.
Quarterly growth rates after Q1 were barely changed from the February
forecast, implying that the lost output in Q1 has gone forever.
"For the majority of members, increase in Bank Rate was not
required at this meeting. The recent weakness in data for the first
quarter had been consistent with a temporary soft path, with few
implications for the current degree of slack or for the outlook for the
UK economy," the May MPC minutes said.
For the majority on the committee "there was value in seeing how
the data unfolded over the coming months, to discern whether the
softness in Q1 might persist."
There is a perpetual debate among the MPC about the potential costs
and benefits of moving earlier or later when faced with a lack of
clarity in the data.
For the majority of members "the costs to waiting for additional
information were likely to be modest, given the need for only limited
tightening over the forecast period," the minutes said.
McCafferty and Saunders put more weight on the more positive trends
in business surveys and the apparent strength in the labour market.
They judged that "a modest tightening of monetary policy at this
meeting could mitigate the risks of a more sustained period of
above-target inflation that might ultimately necessitate a more abrupt
subsequent change in policy."
The MPC proffered no direct comment on market rate expectations and
nor did they say anything explicit about the likely timing of the next
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