BoE's Saunders says the question of whether to curtail our current asset purchase program early will be under consideration at our forthcoming meetings & "..it may become appropriate fairly soon to withdraw some of the current monetary stimulus.."

• In my view, if activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly (and these conditions are important), then it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis
  


• In this case, options might include curtailing the current asset purchase program – ending it in the next month or two and before the full £150bn has been purchased – and/or further monetary policy action next year.


• Beyond the next few meetings, I want to stress that if Bank Rate does rise in the next year or so, it is likely that any rise would be relatively limited


• There is an argument that we should keep the current policy stance at least until it is clear that the end of the furlough scheme (scheduled for end-September) has not been followed by a significant rise in unemployment. .... In my view, that strategy would exacerbate risks that inflation expectations drift higher in coming months
  


• If (and this is not my central expectation) the economy were to develop in such a way that further easing is required at some stage in the next year or two, the MPC would have the scope and the tools to do so.


• Link to speech

Reaction details (11:09)

• Commentary which sparked an immediate 'hawkish' reaction in UK assets sending Gilts marginally into negative territory and lifting Cable to positive performance on the session.


• Specifically, Gilt Sep'21 fell from 129.41 to 128.99 over the course of 5-minutes, pressuring Bunds and USTs (though these remain positive on the session); additionally, GBP/USD rose from 1.3839 to a session high of 1.3882

Analysis details (11:20)

• Such commentary follows similarly hawkish remarks from MPC member Ramsden yesterday (link here) who said that he can envisage the conditions for considering tightening being met somewhat sooner than he had previously expected; however, Ramsden's comments, in contrast to Saunders, did not cause much if any market reaction.


• Note, following Ramsden but prior to Saunders, we saw commentary from Governor Bailey making clear that they will not be rushed into deciding on interest rates in-spite of the increase in inflation.


• As a reminder, the BoE board is now - following the departure of Hawk-Chief Economist Haldane at end-June - generally regarded as being somewhat dovish overall; however, the referenced remarks from Saunders and Ramsden make clear that at least two members of the MPC are of the view that policy tightening could be required sooner than previously expected

15 Jul 2021 - 11:02- Fixed IncomeEconomic Commentary- Source: BoE