MNI STATE OF PLAY: Focus On MPC Composition As BOE Set To Hold

The Bank of England's internal work schedule, the absence of a press conference and its decision in May to shift policy guidance to neutral all weigh against its providing any new signalling in Thursday's policy statement and minutes following its June meeting, with more attention on the future composition of the Monetary Policy Committee than its actions this month.

After last month's move to remove the promise that it would take whatever action necessary "if the outlook for inflation weakens" the next iteration of the BOE's guidance is likely to emphasise readiness to tackle upside inflation risks. But the news flow since is unlikely to have been sufficient to shift the stance of the majority on the MPC that tightening should be delayed at least until there is clearer evidence of significant progress in eliminating spare capacity.

Such a re-evaluation would make more sense in August's forecast round rather than during June's interim meeting. The forecast round will also give the MPC and Bank economists the chance to work through the implications of U.S.-led upside inflation surprises and the associated shift in market rate expectations, which now indicate a first BOE hike for next summer.

NEW ECONOMIST

In May, Chief Economist Andy Haldane alone voted to reduce the scale of the ongoing asset purchase programme to GBP100 billion from GBP150 billion, cutting the stock target of gilt purchases to GBP825 billion from GBP875 billion.

The BOE's review of its approach to tightening is also unlikely to be ready before August at the earliest. This will allow the MPC to set out its preferred strategy well in advance, and is likely to alter the current approach under which QE unwind would only start when Bank Rate reaches around 1.5%. Governor Andrew Bailey has said an earlier QE unwind would free up policy space to deal with future shocks.

Interest will focus on the nine-member MPC's future composition, with Haldane leaving after this meeting and independent member Gertjan Vlieghe's second-term expiring at the end of August. The Bank needs to announce Haldane's successor soon. If it is an internal appointment, with Vlieghe and fellow MPC member Silvana Tenreyro having been mentioned as possibilities, two new external members would have to be found.