- Prior 4.25%
- Bank rate vote [cut-unchanged-hike] 5-4-0 vs 7-2-0 expected after second round of voting
- Greene, Lombardelli, Mann, Pill voted to keep bank rate unchanged
- Taylor voted to cut bank rate by 50 bps in first round but changed to 25 bps in second round to avoid hold
- It is the first time ever that the BOE had two rounds of voting to reach a majority decision on bank rate
- Prior 3-6-0
- The path of disinflation in underlying domestic price and wage pressures has generally continued, albeit to different degrees
- Pay growth remains elevated but has declined further recently
- Still vigilant about the extent to which easing pay pressures will feed through to consumer price inflation
- Underlying UK GDP growth has remained subdued, consistent with a continued, gradual loosening in the labour market
- A gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate
- The restrictiveness of monetary policy has fallen as Bank Rate has been reduced
- The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which underlying disinflationary pressures continue to ease
- Monetary policy is not on a pre-set path
- Full statement
There’s quite a bit to digest and get through with the decision here. But let’s start off with the obvious and that’s the bank rate vote. For one, it is the first time ever that BOE policymakers have had to recast their votes after the first split. While that might seem rather hawkish, it isn’t quite. The split only happened because Taylor decided to vote for a 50 bps rate cut (surprisingly, Dhingra didn’t).
Essentially, that meant a split [50 bps – 25 bps – 0 bps] of 1-4-4 in the first round. As such, Taylor changed his stance after to make it a 0-5-4 vote at the end of the second round. And that broke the deadlock, leading to the decision above.
That being said, the end result is still a finely balanced decision and definitely one on the more hawkish side but perhaps not overly hawkish as what one might think a tie in the first split would be.
Lombardelli voting to keep the bank rate unchanged is the real surprise while Greene was a bit of a potential outlier but she did lean more hawkishly in the end. If anything, I’d argue such a split will still rule out a September move unless we see really bad data on the jobs front in particular.
As for November, that is still very much on the table. So, the path towards cutting rates further is definitely set now especially after the central bank introduced these two sentences:
“The restrictiveness of monetary policy has fallen as Bank Rate has been reduced. The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which underlying disinflationary pressures continue to ease.”
As such, inflation data will remain key and barring any surprises, we should see the BOE hold in September. And they made sure to leave that flexibility in there by retaining the phrase “gradual” and “careful” still.
The pound is higher here with cable up from 1.3380 to 1.3425 here but I’d look to fade the jump if anything else. However, I’d look for EUR/GBP and other GBP crosses in particular to do that.
The sentiment here is that the BOE was forced into a second vote, in what some people might think that is because there wasn’t enough votes to push for a rate cut. But c’mon, if someone is voting for a 50 bps rate cut, you think that they wouldn’t be okay with a 25 bps rate cut rather than no rate cut? Geez.
This article was written by Justin Low at investinglive.com.