MNI: BOE MPC KEEPS POLICY RATE ON HOLD ON 5-4 VOTE
The Bank of England Monetary Policy Committee split five-to-four in deciding to leave Bank Rate on hold at 5.25%, with all the senior Bank insiders on the committee, with the exception of departing Deputy Governor Jon Cunliffe, backing no change.
External MPC members Megan Greene, at her second meeting, Jonathan Haskel and Catherine Mann, along with Cunliffee, voted for a 25 basis point rate hike.
While keeping Bank Rate steady, the MPC stuck to its previous guidance, stating that further tightening would be required if there was evidence of more persistent inflationary pressures and that policy would stay restrictive for long enough to get inflation back to target.
The vote and the minutes highlighted just how close the vote was.
In the no change camp for most members the decision was "finely balanced" the minutes stated although for one member, presumably Swati Dhingra based on her recent public comments "the risks of overtightening policy had continued to build."
Those backing unchanged policy the fall in headline and services inflation in the most recent release and the downbeat reports on activity from firms contacted by the Bank's agents and the purchasing managers surveys. which pointed to economic contraction.
Bank staff expected only a slight rise in Q3 GDP and they noted signs of loosening in the labour market, with the vacancies-to-unemployment ratio continuing to decline and a sharper than expected rise in unemployment.
The alternative view, among those favouring a hike, was that the labour market was still tight, the natural, or equilibrium, jobless rate may have risen and service sector inflation was above levels compatible with the 2% inflation target. They argued a hike was needed to address the risks of inflation becoming more deeply embedded and noted that the most recent fall in service sector inflation, a key measure of underlying inflationary pressure, was driven by the more volatile components.
The MPC also signed off on plans to accelerate balance sheet reduction, agreeing to a GBP100 billion diminution of the gilt stock over the next 12 months compared to a GBP80 billion reduction over the previous 12 months.