MNI BOE WATCH: Split Vote To Hold Puts Spotlight On Plateau

The Bank of England’s Monetary Policy Committee split five-to-four as it left Bank Rate unchanged at 5.25% at its September meeting, with the knife-edge vote leaving doubts over whether the tightening cycle peak has now been reached.

Four members voted for a 25-basis-point hike and there was no change to guidance that further monetary tightening would be needed if there was evidence of more persistent price pressures and that policy would stay restrictive for sufficiently long to get inflation sustainably back to target. This both leaves a door ajar to a further hike while floating the idea of rates staying high, and stable for an extended period in a so-called “Table Mountain” approach. (See MNI INTERVIEW:Credibility Key To "Table-Mountain" Rates Pledge)

But the vote split highlighted uncertainty over what comes next. Of the MPC’s nine members all the Bank insiders, with the exception of Deputy Governor Jon Cunliffe, voted for unchanged policy while of the four external members three, Megan Greene, Jonathan Haskel and Catherine Mann opted for a 25bp increase, while Swati Dhingra backed no change and warned of the risks of overtightening.

The group voting for no change said their judgement was “finely balanced”, the minutes said.

In sum, this implies that the next meeting in November, when the MPC will have new economic forecasts, is now likely to see at least three votes for a hike and one for no change with the insiders ready to move either way, in the absence of a sudden change in the data.

SIGNS OF LABOUR MARKET SLACK

Analysis of the data within the minutes highlighted uncertainty over the outlook, with Average Weekly Earnings growth in the three months to July 0.8 percentage point above the Bank's own forecast, at 8.1%, but with other pay indicators relatively stable and with signs of cooling, including a further decline in the vacancies-unemployment ratio followed closely by the MPC as a measure of labour market slack.

Bank economists are currently engaged in a review of the supply side, the labour market stock take, with some of the work likely to be completed for November although it may be February before it is done in full.

The MPC also highlighted growing evidence of an economic slowdown, with Bank staff expecting only a slight rise in activity in Q3, and some external economists now predicting no growth at all this quarter. The minutes stated that "underlying growth in the second half of 2023 was also likely to be weaker than expected."

Having left Bank Rate on hold in September, breaking a run of 14 consecutive hikes starting in December 2021 which lifted the policy rate from 0.1% to 5.25%, the message from the MPC is that no cuts are likely soon, with the debate centred on whether to stay on hold or to raise it a little higher.