MNI POLICY: BOE's MPC Converges On High-For-Long Message

Divisions within the Bank of England’s Monetary Policy Committee are narrowing ahead of this week’s meeting, with all but one member converging on the message that there is a risk high inflation will prove persistent and that it is too early to talk about cuts.

While a raft of recent interviews and public speeches looks to have been coincidental, with the window for public comments by MPC members restricted by purdah periods ahead of meetings, sensitivities around fiscal events and by personal diaries, it reinforced the sense that the BOE is set to hold Bank Rate near its current 5.25% for some time.

A maiden speech by Megan Greene, who joined the Committee back on July 5, saw her stress that the risks of doing too little and too much were "more finely balanced since earlier this summer," as activity has eased. Given that Greene was one of three members to vote for a hike at the November meeting, versus six preferring no change, it now appears she has shifted to the majority camp.

Greene’s caution regarding the persistence of inflation, with her speech pointing to continuing concern over service sector inflation, and to a tight labour market with headline official earnings growing at just below 8% while other wage growth measures are near 7%, is in line with the prevailing view that rates will need to stay at restrictive levels for “an extended period”.

DHINGRA THE DISSENTER

Markets are only imply a very slim chance of a hike in December, with analysts divided over whether one, two or even three members will switch to no change and whether independent MPC member Swati Dhingra could vote for a cut.

Even though economic growth is weak, and, in the words of BOE Chief Economist Huw Pill, bobbing-around-zero, eight of the nine members of the Monetary Policy Committee are placing greater weight on the risk of inflation persistence than on concerns of possible overtightening. Still, while it is unclear whether the MPC will see any benefit this week in explicitly pushing back against market rate expectations for cuts next year, the drive for a hike, led by Jonathan Haskel and Catherine Mann, is clearly a spent force.

Viewed through this lens, Dhingra is now the member with the clearest dissenting view. She has highlighted the risk of overtightening given lengthy policy lags, with around half the tightening to date to still feed through. (See MNI POLICY: Bernanke Review Looks At BOE Rate Path, Scenarios)