- Prior 4.50%
- Bank rate vote 8-1 vs 7-2 expected (Dhingra voted to cut bank rate by 25 bps)
- There has been substantial progress on disinflation
- That progress allowed for gradual withdrawal of policy restraint while maintaining restrictiveness
- Global trade policy uncertainty has intensified since last policy meeting
- Other geopolitical uncertainties have also increased
- Indicators of financial market volatility have risen globally
- Business survey indicators generally continue to suggest weakness in growth
- A gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate
- If inflation pressures are pushed down, it warrants a less restrictive path of bank rate
- But if there are second-round effects related to the near-term increase in inflation, this would warrant a relatively tighter monetary policy path
- Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further
- Full statement
The rate decision is as you would expect and the main language in the statement hasn’t changed that much. However, there is a subtle sense that they have become less dovish at the balance. That especially when speaking about the balance of risks to inflation with regards to what they will be doing next.
In February, the BOE noted that:
“If there were to be more constrained supply relative to demand, this could sustain domestic price and wage pressures, consistent with a relatively tighter monetary policy path.”
Today, the central bank said that:
“Should there be more constrained supply relative to demand and more persistence in domestic wages and prices, including from second-round effects related to the near-term increase in CPI inflation, this would warrant a relatively tighter monetary policy path.”
That additional line on there being a concern about second-round effects to inflation arguably shows that they might want to keep the bank rate on hold for a bit more, if needed.
Otherwise, the main guidance of needing to be “gradual” and “careful” in withdrawing their policy restraint is still maintained.
Besides that, the bank rate vote also saw Mann not siding for a 25 bps rate cut this time around. This was not expected given her position in February where she voted for a 50 bps move then. So, I guess she’s shifted back to the other side.
GBP/USD is up slightly to 1.2975 from around 1.2950 earlier, though still down 0.2% on the day amid a firmer dollar.
This article was written by Justin Low at www.forexlive.com.