LONDON – The Bank of England’s rate setting committee are expected to sit on collective hands when it comes to interest rates at Thursday’s scheduled meeting.
The Monetary Policy Committee (MPC) is widely expected to vote 7-2 in favour of keeping its main lending rate at 5.00% following August’s quarter-point cut.
BofA’s Sonali Punhani and team said they were aligned with the consensus but warned that risks are for a more dovish 6-3 split among officials. “We expect unchanged guidance to emphasise a meeting-by-meeting approach.
“We have a new MPC member, Taylor, replacing Haskel (who was a hawk), and his views are unknown. We suspect he votes with the majority but there is a risk that he dissents.”
Central bank watchers noted that there would be no press conference; therefore, communications would be limited to the policy summary and minutes.
"We think it is too early for the BoE's guidance to commit to a sustained cutting cycle or give clear guidance on the rate path," added Punhani.
In terms of what analysts will be focused on, the anticipated announcement of the balance sheet reduction measures tops the list. TD Securities predicted a repeat GBP 100bln reduction in the balance sheet, with GBP 87bln of that coming via maturing debt and just GBP 13bln via active sales of Gilts.
“Uncertainty here remains wide, though, and the MPC will no doubt actively debate a range that could fall somewhere between GBP 87bln and GBP 130blnn,” the Canadian firm noted. “A larger number (ie a faster balance sheet reduction) could favour the fiscal picture and help the Labour government find more spending room in their October budget.”
Supporting data
The latest UK S&P Services PMI reading showed a reacceleration of business activity. The pollster S&P Global said the results indicated a “robust rise in new work led by improving domestic demand”, and the “slowest rate of prices charged inflation for three-and-a-half years”. All good news for the hawks on the MPC.
The UK reported an in-line headline annual inflation print for August, with services yet again proving the sticking point to slow price growth. However, this is not expected to sway policymakers at the September meeting.
Benchmark CPI held at 2.2% y/y in the last month, the same as July. Core CPI. a key measure of underlying strength, increased to 3.6% y/y, matching estimates and moving three-tenths above last month’s mark.
The ONS said August price growth was stronger than in the euro area and the US when accounting for seasonally adjusted service price momentum over the past three months.
Nomura George Buckley said: “While these figures are still especially important to policymaking, there’s less of a ‘whites of the eyes’ focus on inflation these days and more focus on the bank’s forecasts themselves and the growth outlook.”
Policy expectations
With this month’s decision looking fairly squared away, beyond September, experts hoping for more rate reductions appeared rather sanguine.
“Over the past three months, consumer service price momentum is still present, and with activity in the business surveys generally holding up we expect only a quarterly pace of 25bp bank rate cuts, the next move being in November.”
Deutsche Bank’s Sanjay Raja posited that the latest consumer price data wouldn’t be enough to trigger a surprise rate cut on Thursday. “Instead, the MPC will likely take this as a positive sign that underlying price pressures are easing and could warrant a further dial down of restrictive policy in November, when it conducts its next forecast update.”
He noted that at that point, the committee should also have garnered more evidence of economic health from the Autumn Budget scheduled for 30 October.
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- MPC expected to hold rates at 5.00%
- Balance sheet reduction update expected
- Recent data opens door for November cut
- Rate decision due at 11.00 GMT
By Harry Daniels
LiveSquawk News
@HarryDaniels71
18 September 2024 | 10:00 GMT
LONDON – The Bank of England’s rate setting committee are expected to sit on collective hands when it comes to interest rates at Thursday’s scheduled meeting.
The Monetary Policy Committee (MPC) is widely expected to vote 7-2 in favour of keeping its main lending rate at 5.00% following August’s quarter-point cut.
BofA’s Sonali Punhani and team said they were aligned with the consensus but warned that risks are for a more dovish 6-3 split among officials. “We expect unchanged guidance to emphasise a meeting-by-meeting approach.
“We have a new MPC member, Taylor, replacing Haskel (who was a hawk), and his views are unknown. We suspect he votes with the majority but there is a risk that he dissents.”
Central bank watchers noted that there would be no press conference; therefore, communications would be limited to the policy summary and minutes.
"We think it is too early for the BoE's guidance to commit to a sustained cutting cycle or give clear guidance on the rate path," added Punhani.
In terms of what analysts will be focused on, the anticipated announcement of the balance sheet reduction measures tops the list. TD Securities predicted a repeat GBP 100bln reduction in the balance sheet, with GBP 87bln of that coming via maturing debt and just GBP 13bln via active sales of Gilts.
“Uncertainty here remains wide, though, and the MPC will no doubt actively debate a range that could fall somewhere between GBP 87bln and GBP 130blnn,” the Canadian firm noted. “A larger number (ie a faster balance sheet reduction) could favour the fiscal picture and help the Labour government find more spending room in their October budget.”
The latest UK S&P Services PMI reading showed a reacceleration of business activity. The pollster S&P Global said the results indicated a “robust rise in new work led by improving domestic demand”, and the “slowest rate of prices charged inflation for three-and-a-half years”. All good news for the hawks on the MPC.
The UK reported an in-line headline annual inflation print for August, with services yet again proving the sticking point to slow price growth. However, this is not expected to sway policymakers at the September meeting.
Benchmark CPI held at 2.2% y/y in the last month, the same as July. Core CPI. a key measure of underlying strength, increased to 3.6% y/y, matching estimates and moving three-tenths above last month’s mark.
The ONS said August price growth was stronger than in the euro area and the US when accounting for seasonally adjusted service price momentum over the past three months.
Nomura George Buckley said: “While these figures are still especially important to policymaking, there’s less of a ‘whites of the eyes’ focus on inflation these days and more focus on the bank’s forecasts themselves and the growth outlook.”
With this month’s decision looking fairly squared away, beyond September, experts hoping for more rate reductions appeared rather sanguine.
“Over the past three months, consumer service price momentum is still present, and with activity in the business surveys generally holding up we expect only a quarterly pace of 25bp bank rate cuts, the next move being in November.”
Deutsche Bank’s Sanjay Raja posited that the latest consumer price data wouldn’t be enough to trigger a surprise rate cut on Thursday. “Instead, the MPC will likely take this as a positive sign that underlying price pressures are easing and could warrant a further dial down of restrictive policy in November, when it conducts its next forecast update.”
He noted that at that point, the committee should also have garnered more evidence of economic health from the Autumn Budget scheduled for 30 October.