BOE REVIEW: MPC stands pat as it bets that existing actions are sufficient

Analysis details (14:35)

As expected, the MPC opted to stand pat on rates once again after doing so at the last meeting. The decision was subject to dissent from Mann, Greene and Haskel, whilst newly-appointed Breeden replaced Cunliffe's hawkish dissent with an unchanged vote. The decision to stand pat on rates was based on the judgement that since the last meeting, GDP had weakened, the labour market continued to loosen and CPI is expected to decline "significantly" in the coming months. Furthermore, the accompanying MPR noted that "more than half of the impact of higher interest rates on the level of GDP is still to come through". The statement reiterated that "policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target", whilst keeping open the option of further tightening if needed. When it comes to policy easing, Governor Bailey judges that it is "much too early to think about rate cuts". The forecasts embedded within the MPR saw 2023 inflation lowered to 4.75% from 5.0% and 2024 upgraded to 3.25% from 2.5%, with inflation not expected to fall below the 2% target until Q4 2025 (vs. prev. view of Q2 2025). From a growth perspective, GDP is now expected to be completely flat next year. At the follow-up press conference, Bailey didn't add too much to the debate surrounding the BoE with the Governor suggesting that now is not the time for complacency when it comes to inflation. However, he did also make the point that policy should not be kept excessively tight for too long. Overall, the MPC is very much in wait-and-see mode to gauge if current tightening efforts are actually sufficient. Although the MPC has kept the door open for further tightening, the market continues to judge that the next move from the Bank will be to lower rates, with the first 25bps reduction in the Bank rate seen in September next year. 

02 Nov 2023 - 14:35- Fixed IncomeData- Source: Newsquawk