Bank of England Policy Left As Is But Reveals a Dovish Sign

November 7, 2019

Sterling’s slide reflects one of the days biggest surprises. While the Bank of England Monetary Policy Committee left unchanged existing stocks of corporate bond purchases, U.K. gilt purchases, and the 0.75% bank rate, the vote by the 9-person committee on the interest rate level drew dissents favoring a cut by Michael Saunders and Jonathan Haskel. As officials have done all along, forward guidance allows for two-sided risk because of uncertainties like the details of a Brexit deal and, more importantly, a lack of clarity regarding how the economy will respond to whatever evolves on Brexit. The committee’s statement notes that odds have improved against a no-deal Brexit and states that if downside economic risks do not materialize, “some modest tightening of policy at a gradual pace and to a limited extend may be needed” in the latter half of the forecast horizon. A new quarterly Monetary Policy Report accompanied this statement that concedes that the slowdown of growth this year has created a modest excess supply in the economy. CPI inflation is projected to accelerate 0.1 percentage point to 1.5% a year from now, 2.0% in late 2021 and 2.2%, that is above target, by late 2022.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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