MNI BOE WATCH: Bank Rate Held With A Nod To November Cut
MNI (LONDON) - The Bank of England Monetary Policy Committee kept interest rates unchanged at 5% at the September meeting, with policymakers voting 8 to 1 in favour of Governor Andrew Bailey's proposition, with communication hinting at a second rate cut at November's quarterly MPC meeting in the absence of any significant shift in expectations in the interim.
As on many occasions, before August's 25bps cut, external member Swati Dhingra preferred an immediate further 25bps cut in rates, highlighting among her reasons policy transmission lags. (see MNI BOE WATCH: MPC On Course For Steady Rate, Smooth QT Policy)
Additionally, the MPC voted unanimously to reduce the stock of government bonds on the Bank's balance sheet by an additional GBP100 billion in the year from October to comprise GBP 87 billion of maturing bonds rolling off and GBP13 billion of active sales, down from active sales of around GBP50 billion in the current 12 month period. (see MNI POLICY: BOE Seeks Low Key QT, No Sharp Pace Change Likely)
The Bank voted before news of the Federal Reserve's 50bps rate cut broke, with the MPC noting in the minutes the Fed was expected to ease by either 25 or 50 bps.
GUIDANCE
Guidance was little changed, although there was an implicit nod to a November rate cute, as policymakers noted that "a gradual approach to removing restraint remains appropriate" in the absence of material developments.
This, along with a reference in the minutes noting that the MPC would make a full assessment of recent and prospective developments as part of its forthcoming November forecast round which echoes language that first appeared in June ahead of an August cut, can be read as a hint that it would take a major upside data surprise to push policymakers away from a further 25bps of easing when the MPC next gathers.
However, the MPC again accepted policy would need to remain restrictive for "sufficiently long" to return inflation to target, while the risks of inflation persistence will be closely monitored and would decide the appropriate policy restrictiveness at each meeting.
Governor Andrew Bailey said in a statement alongside the release that the Bank "should be able to reduce rates gradually over time," but noting rates should not be cut too fast or by too much.
Financial markets showed little reaction to the MPC's decision, although gilt yields rose modestly. Markets are continuing to fully price in a November cut and have increased the chances of a further cut at the December MPC meeting from 50% to 75%.