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UBS view ahead of this week's MPC meeting

BOE
  • UBS expects the MPC "to re-iterate its intention to reach the stock of £745bn in asset purchases by "the turn of the year" but maintain flexibility in adjusting the pace and size if necessary. The focus at this meeting is likely to be on the update of the MPC's outlook"
  • On forecasts. "it is possible that the updated MPC projections could foresee a somewhat slower recovery in H2 2020 and possibly 2021 compared to the May forecast. While a significant recovery in oil prices (up 48% from the May meeting) could push up the MPC's CPI projections of 0.6% in 2020 and 0.5% in 2021, a combination of the temporary VAT rate cut for the hospitality sector and a more cautious outlook on growth are likely to keep the inflation forecast firmly below the 2% target until the end of 2021."
  • UBS expects "the MPC to remain in a wait and see mode over the coming weeks. However, depending on the labour market transition following the end of the job retention scheme in October, we think the MPC might consider adding more stimulus in the shape of more favourable TFSME programme terms, or increasing the pace/size of the asset purchases."
  • On negative rate, UBS says that "doubts that the MPC would choose to cut Bank Rate into negative territory before adopting other unconventional policies."
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