BOE REVIEW: MPC calls for a pause after 14 consecutive hikes

Analysis details (13:52)

Heading into this week, 64/65 surveyed economists by Reuters expected the BoE to hike the Bank Rate by 25bps to 5.5%. However, this overwhelming consensus was derailed by the August CPI report, which saw headline Y/Y CPI fall to 6.7% from 6.8% (vs. exp. 7.0%), core CPI drop to 6.2% from 6.9% (vs. exp. 6.8%) and the all services print decline to 6.8% from 7.4% (vs. MPC exp. 7.2%). As such, markets shifted expectations in a more dovish direction to a near coin-flip at one stage heading into the announcement. In the end, the MPC opted to stand pat with the Bank rate held at 5.25% via a 5-4 vote and the majority consisting of Bailey, Broadbent, Dhingra, Ramsden and Pill. The unchanged camp justified their vote on the basis that "there were signs that the labour market was loosening", whilst those in the hike camp consisted of Cunliffe, Greene, Haskel and Mann amid the judgement "..overall there was evidence of more persistent inflationary pressures". Despite today's decision, the MPC opted to keep some optionality over further moves by reaffirming that "further tightening would be needed if evidence of more persistent inflation pressures is seen". Furthermore, the statement reiterated that "policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target". In terms of the economic outlook, "CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation". However, services inflation is projected to remain elevated in the near term, with some potential month-to-month volatility. On the growth front, "Bank staff now expect GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 is also likely to be weaker than expected". Alongside the rate decision, the MPC opted to reduce the stock of gilts by GBP 100bln (exp. ~80bln) in the 12-months starting October. Overall, as noted by ING, there is only "one set of inflation and wage data before November’s meeting, so there’s not a huge amount for the Bank to go on". As such, "If there's enough in the recent data to convince the Bank to pause this month, then we suspect the same will be true in November".

21 Sep 2023 - 13:51- Fixed IncomeEconomic Commentary- Source: Newsquawk