- Prior 5.25%
- Bank rate vote 4-0-5 vs 4-0-5 expected (Pill, Mann, Haskel, Greene dissented to keep rates on hold)
- Decision was “finely balanced”
- Domestic inflationary persistence is expected to fade away over the next few years
- There is a risk that inflationary pressures from second-round effects will be more enduring in the medium-term
- Need to be careful not to cut rates too quickly or by too much
- Will ensure bank rate stays restrictive for sufficiently long to return inflation to 2% target sustainably
- Will decide on degree of policy restrictiveness at each meeting
- There is uncertainty about interaction between cutting bank rate and quantitative tightening
- Full statement
The rate cut itself can be argued to be the more dovish decision, but the details are less than convincing. The five policymakers who voted for a rate cut were Bailey, Breeden, Dhingra, Lombardelli, and Ramsden. But the footnote reads that they just found it “appropriate to reduce slightly the degree of policy restrictiveness”. I think there might be an emphasis on the word “slightly” there.
Additionally, the BOE notes that some of the five members are of the view that “inflationary persistence had not yet conclusively dissipated, and there remained some upside risks to the outlook”.
Put together, that might allude to a pause in September unless inflation developments continue to improve in the weeks ahead.
As for the dissenters, the footnote mentions that they “preferred to maintain the current level of bank rate until there was stronger evidence that upside pressures to inflation would not materialise”. But just be mindful that this will be Haskel’s last meeting in attendance before stepping down from his post as BOE policymaker.
GBP/USD dipped initially on the decision to a low of 1.2751 but is holding around 1.2760 levels now, just down slightly from the decision. That said, the pound had made some slight moves in positioning for a dovish outcome earlier here.
Now, let’s see if Bailey will explicitly mention a one-and-done scenario or if he is going to keep September on the table later.
This article was written by Justin Low at www.forexlive.com. Source