BOE Seen Maintaining Policy as Carney Assesses Forward Guidance

The Bank of England will probably keep its asset-purchase program and benchmark interest rate unchanged next week as Governor Mark Carney and officials assess the impact of the central bank’s forward guidance.

The nine-member Monetary Policy Committee will keep its bond-buying program at 375 billion pounds ($580 billion), according to all 37 economists in a Bloomberg News survey. Officials will also hold the key rate at a record low of 0.5 percent, a separate survey showed.

Carney introduced guidance this month, saying the MPC won’t consider raising its key rate until unemployment falls to 7 percent, something it doesn’t see happening until the end of 2016. Investors have indicated skepticism about that projection and increased bets on an increase before then, prompting Carney to say officials are ready to add stimulus if expectations for higher rates hurt the recovery.

“There are few indications that the MPC is prepared, or able, to confront more directly the market’s tendency to price in higher rates,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “The scale of the rise in rates since August does not pose a threat to the recovery, so the bank has some leeway before the falling unemployment rate exerts more serious pressure on their desired dovish guidance.”

The MPC will announce the decisions at noon in London on Sept. 5 after meeting on Sept. 3-4. The meeting was moved forward to allow Carney to attend the Group of 20 summit on Sept. 5-6 in St. Petersburg, Russia. Minutes of the decision showing how officials voted will be published Sept. 18.

Market Expectations

Data this week showed consumer confidence rose to the highest in almost four years in August after the economy grew 0.7 percent in the second quarter.

Short-sterling futures declined this month as investors increased bets for higher borrowing costs. The implied yield on the short-sterling contract expiring in December 2014 has risen 19 basis points since July 31 to 0.87 percent.

Walker said there’s a chance the MPC will release a statement after the decision because to do nothing “would encourage the view that there is growing hawkish dissent.” Policy maker Martin Weale voted against guidance this month as he wanted a tougher inflation condition.

“The only interest vis-a-vis Sept. 5 is whether the MPC publishes a statement and, if so, whether it breaks any new ground in terms of providing guidance over what the bank would be prepared to do to address rising market interest rates,” Walker said.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Fergal O’Brien at fobrien@bloomberg.net

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