MNI BOE WATCH: MPC On Hold, Too Early To Consider Cuts

The Bank of England is expected to leave its policy rate on hold at 5.25% this week, with a majority within the Monetary Policy Committee convinced that the persistence of inflation means it is too early to consider cuts even as support for more hikes ebbs.

Since November, when the number of members backing a 25-basis-point hike fell to three from four at the previous meeting, both Megan Greene and Jonathan Haskel have made comments suggesting they could now agree to hold the policy rate rather than raising it further, although a shift from either would just reinforce the consensus view of 'higher-for-longer'.

While analysts are now divided over the vote split this month, Governor Andrew Bailey’s comments in a keynote lecture last month and in subsequent remarks to the media that it is “far too early” to talk about rate cuts seem to represent the overwhelming view, with Swati Dhingra, who has repeatedly placed greater emphasis on the risks of over-tightening, the only clear dissenter. (See MNI POLICY: BOE's MPC Converges On High-For-Long Message)

This leaves an obvious tension between the MPC's majority "high-for-long" message and growing market expectations that the policy rate will be cut in the not-too-distant future. In its statement, the Committee could either directly address market pricing or, with no new forecast round in December, stick to its previous guidance for rates to stay "sufficiently restrictive for sufficiently long" to return inflation back to and that they will "likely to need to be restrictive for an extended period of time."