Bank of England Review

October 9, 2014

A terse boilerplate statement was released today at the end of the Monetary Policy Committee’s October meeting, leaving the Bank Rate at 0.5% and the size of the bond purchase program at 375 billion pounds.  The last rate change occurred in March 2009, when quantitative stimulus was also introduced.  The last increase of the asset buying program was announced in July 2012 and completed four months later.  Minutes from this week’s meeting are scheduled to be published on October 22. 

These bare facts in the statement are typical of statements released when policy has not been changed and mask a more finely balanced policy bias on the committee.  Governor Mark Carney has said that the first rate hike could occur sooner rather than later, and minutes of last month’s MPC meeting released September 17 revealed dissents in favor of a 25-basis point rate increase then by two of the nine committee members — McCafferty and Weale, who had also dissented from the no-change majority at August’s meeting.  U.K. growth this year has been surprisingly buoyant, and the IMF is projecting that its GDP will climb by 3.2% this year and 2.7% in 2015, which would be faster than likely U.S. growth.  The upswing is not evenly shouldered however, as attested by the latest set of purchasing manager indices — 51.6 for manufacturing (a 17-month low), 64.2 for construction (an 8-month high), and 58.7 for services (a 3-month low).  In August, industrial production was flat on month, and factory output edged up just 0.1%.  The committee majority in favor of delaying a rate hike is most concerned about the lethargy of wages, which are likely to rise less than 1.5% this year in spite of falling unemployment.  Such members want proof that wages are catching up with the rising trends of other economic indices before taking away some stimulus.  As with betting on the first hike of the federal funds rate, conventional wisdom sees an initial increase in the Bank of England’s key interest rate happening no earlier than March but no later than mid-2015.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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