BoE: MPC’s neutral hold - Westpac

Tim Riddell, Research Analyst at Westpac, explains that the 7-2 decision to leave policy unchanged may have been at the core of expectations but the market had a distinct skew towards a more hawkish hold (so potential for a 6-3 vote). 

Key Quotes

“The dissent from Saunders and McCafferty should surprise no one  since they have persistently called for the Bank Rate to lift 25bps to 75bps.”

“The overall tone of the MPC’s minutes and the Inflation Report remained relatively positive, but growth for the current year, which was lifted to 1.75-1.80% in February (from 1.5%) has been lowered to 1.4%. The BoE explicitly suggest that the low 1Q GDP of 0.1% is likely to be revised up, something that does not seem to be reflected by the Office of National Statistics.”

“Carney, in response to uncomfortable questioning, highlighted that they would respond to data dependent as appropriate and would be prudent in their policy rather than pointedly persistent.”

“The one notably more positive slant in Inflation Report is the improvement in their employment projections. Unemployment is seen sliding to (and stabilising at) 4.0% and that slack in the economy will disappear in 2019.”

“Although they are looking for wage growth to lift, the structurally lower productivity in the economy means wage growth will be more limited than historical trends would suggest. This is one of the factors behind their glacial rise in rates over the three year outlook horizon.”

“The “known” elephant in the room remains Brexit

The recognition of Brexit uncertainty threatening growth may not be new, but it remains a major obstacle for their growth projections.

If Brexit concerns can be resolved, this could lift their rate projections, but the lack of clarity still dictates their prudence.”