BOE announces latest monetary policy decision

  • Bank rate votes 0-0-9 expected
  • Gilts purchases £875 billion
  • Corporate bond purchases £20 billion
  • Total asset program £895billion (unchanged)
  • 8-1 vote on QE (Haldane dissenter)

A very holding position from the headline figures with only Haldane looking at tapering bond purchases. This is his last meeting too, so he is a hawk soon to fly the nest. GBP falling on the lack of hawkish take. Sonia futures had seen optimism after the Fed's hawkish dot plot shift, but the BoE is cautious. GBP retracing that optimism now and GBPUSD down around 70 points.

  • Uncertainty about how many people with resume search for a job at the end of the furlough scheme
  • inflation rise expected to be transitory
  • One dissenter on the asset purchases vote - that was Haldane
  • GDP in 2021 for Q2 revised up by about 1.5%
  • Did not want to undermine the recovery by premature tightening
  • Asset purchase programme to be kept under review
  • UK inflation expectations remain well anchored (no inflation fears here)
  • Output in a number of sectors is now around pre-Covid levels
  • The number of furloughed jobs has declined faster than expected, as demand has recovered
  • CPI likely to exceed 3% for a temporary period (so there is higher tolerance for more inflation from the BoE)
  • 2021 Q2 GDP Growth revised up to 5.5% from 4.25% at the time of May report
  • A stronger path for demand would close the output gap sooner than previously expected.
The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

All in all a very cautious meeting with the BoE not wanting to run any risk of easing monetary policy too soon. Now with Haldane leaving the one clear hawk has gone with Vlieghe and Ramsden next in the line. This is the third 'bullish under the hood' BoE meeting in a row, but cautions reigns for now for the MPC.

Medium term this does keep the bullish GBP bias alive, but the markets wanted to see at least a hint of tightening to keep the GBP moving higher. That is a cap for now, but I would expect buyers on the dip.