BoE’s decision in line with expectations

David Page, senior economist at AXA Investment Managers (AXA IM), discusses Super Thursday and concludes that today’s Inflation Report will likely pour cold water on forecasts for a 2015 rate hike.

The Bank of England’s (BoE) new communication schedule saw a bundle of announcements today. The Monetary Policy Committee (MPC) left policy unchanged, with one member dissenting and voting for a rate hike. Governor Carney presented the Inflation Report’s consumer price index (CPI) outlook that was broadly unchanged from May in years two and three, but lower in year one reflecting oil price declines.

He suggested a marginally more hawkish profile than the Bank’s conditioning assumption, but fell short of the hawkish interpretation that followed his recent speech. The report was received dovishly. We maintain our call for a February rate hike. We think the first hike debate will shift to H1 2016, from 2015/2016.

Super Thursday – the new culmination of the Bank’s decision, MPC minutes and Inflation Report combined – delivered policy unchanged with bank rate at 0.50%, Asset Purchase Facility (APF) target at £375bn, and a decision to reinvest the £17bn APF holding maturity in September.

This was all in line with expectations. The Committee saw the first divergent vote this year with Ian McCafferty voting for a 0.25% hike. McCafferty voted for hikes in 2014 and was expected to vote this way today. However, there was some surprise that last year’s compatriot Martin Weale did not join him this time, given hawkish commentary last month.   

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