MNI PREVIEW: BOE MPC Dissent Possible, Policy Action Unlikely

The Bank of England will likely leave policy unchanged at the September meeting, although there would be no great surprise if one or two of the Monetary Policy Committee's more dovish members voted for a pre-emptive addition of stimulus to the economy as it recovers from the Covid-19 shock.

With the September meeting sandwiched between the August and November forecast rounds, the MPC is expected to keep Bank rate at the record low 0.1% and the cumulative total of quantitative easing at GBP 745 billion.

By the time of the November meeting, the BOE will be coming towards the end of its current round of asset purchases, focusing the minds of policymakers on the scope of any additional easing measures needed. The MPC will also then have access to a new set of forecasts, a much clearer idea of the size of the second Covid wave and reworked assumptions on the likely impact of Brexit, all of which will give a clearer insight into action needed.

However, one or two MPC members could certainly take the view that with the scales tilted towards adding stimulus anyway, it would be better to act now.

INSURANCE

Earlier this month, Michael Saunders made the case on insurance grounds for easing policy, citing the risks that if the Covid pandemic persists and businesses place growing weight on a hard Brexit, precautionary saving will rise and business investment and spending will be postponed.

"Risk management considerations imply we should lean strongly against downside risks at present," he said.

Jonathan Haskel alone voted with Saunders to increase asset purchase to the current total of GBP745 billion in May, with the rest of the MPC -- excepting chief economist Andy Haldane -- coming on board in June.

Haskel, like Saunders, has made it clear that he sees the scales tilted to further easing, placing weight on the idea that cautious consumers "worried about unemployment and health risks will hold back the economy" with a rise simply in the risk of joblessness pushing down on household demand and inflation.

With unemployment picking up, and perceived health risks likely rising on a flow of news headlines about early signs of a resurgent Covid-19 and bottlenecks in testing, Haskel may take the view that the downside risks he has flagged up are materialising.

DATA STRENGTHENING

Nevertheless, all nine members voted for unchanged policy in August and the activity data since then has, largely, strengthened. With the GBP745 billion of asset purchases expected to be completed around the turn of the year the MPC has some breathing room.

The Bank's review of negative rates, published in August, highlighted the complexity of taking the repo rate down from its current 0.1% to below zero, leaving QE as the active policy instrument.

On Brexit, the MPC's central projections are conditioned on the assumption that there will be an orderly move to a comprehensive free trade agreement with the European Union on 1 January 2021. While the latest political firestorm highlights the downside risks to the BOE modelling assumption, the committee is again likely to wait-and-see how things play out.