BoE keeps rates unchanged at 5.25% (exp. +25bps hike to 5.50%) in 5-4 vote; to reduce stock of gilts by GBP 100bln (exp. ~80bln) in 12-months starting October

VOTE:

• 4 voted for hike (exp. 8), 5 voted for unchanged (exp. 1)


• Bailey, Broadbent, Dhingra, Ramsden, Pill voted to hold rates


• Cunliffe, Greene, Haskel, Mann voted to raise rates

MOTIVATION:

• Majority cite loosening labour market, August CPI data, falling business sentiment


• Minority saw persistent inflation pressure, and August fall in CPI likely to be short-lived


• One member sees growing risks falling output will require sharper rate cuts

INFLATION:

• Inflation has fallen a lot in recent months, will continue to do so


• Policy will be sufficiently restrictive to get inflation back to target


• Inflation seen falling significantly in near-term despite rising oil prices


• Services inflation set to remain elevated

ECONOMY:

• Says GDP growth is now seen at 0.1% in Q3 (prev. saw +0.4%)


• Underlying growth in H2 likely weakened by more than forecast

GUIDANCE:

• Says further tightening would be needed if evidence of more persistent inflation pressures is seen.

BALANCE SHEET:

• To reduce stock of gilts by GBP 100bln in 12-months starting October


• Will continue to sell Gilts evenly across short-, medium-, and long-buckets


• In Q4, will hold four Gilt auctions in each sector, at planned GBP 670mln size

Full statement here

Reaction details (12:13)

Following the BoE keeping rates unchanged, a decision which was priced with around a 70% probability pre-release following the unexpectedly soft inflation release for August (at one point, pricing was in-favour of a hold in the hours following the inflation data), a marked dovish reaction has been seen in Sterling while Gilts saw an initial spike, but this reversed on the bond purchase update (GBP 100bln vs exp. ~80bln).

• Specifically, Gilt Dec’23 lifted from 95.91 to 96.48 on the decision, before than reversing and moving to a session low of 95.68 as the decision to reduce the stock of Gilts by a larger than expected magnitude got wider coverage.


• 
  GBP/USD fell from 1.2299 to a 1.2234 trough before paring back modestly to circa. 1.2250.


• The FTSE 100 Dec’23 lifted from 7735.5 to 7757 before extending to 7798 over the course of five minutes, with immediate and pronounced upside seen in homebuilders on the decision to keep rates unchanged

21 Sep 2023 - 12:00- Fixed IncomeEconomic Commentary- Source: BoE