Photographer: Simon Dawson/Bloomberg

Super Thursday: What the Bank of England Said

The Bank of England has chosen not to raise its key lending rate. Here’s what the “Super Thursday” release revealed.

How split was the vote?

Ian McCafferty switched his vote to call for a rate increase, but the overall vote was 8-1 to keep rates unchanged. Economists had largely expected a split vote, with most expecting two dissenting voices.

Where does the Bank see inflation heading?

Inflation is estimated to hit 2.03% in two years, 2.14% in three. The near-term outlook for inflation is muted, with the falls in energy prices of the past few months continuing to bear down on inflation at least until the middle of 2016.

The BOE says there’s little evidence in wage settlements or spending patterns of any deflationary mindset among businesses and households.

In his news conference, Governor Mark Carney said it “it wouldn’t be surprising if we had a month or two of negative inflation.”

“Substantial” moves in oil prices and some of the utility prices are “one-off effects, so we put them into our near-term forecast,” Carney said.

The goal is to keep inflation at the 2% target, not to “shoot through.”

And growth?

The Bank raised its 2015 GDP forecast to 2.8% compared to the 2.5% it saw in May. Growth for 2016 is estimated at 2.6%.

And what about the labor market?

Labor market tightening will offset sterling’s drag on CPI.  The Bank of England estimates slack at 0.5%, and says members of the Monetary Policy Committee have a range of views.

 


 Analysis: No Surprise on Threadneedle Street

The Bank of England’s “Super Thursday” may disappoint some who were expecting a big shift in BOE policy. We don’t interpret a split of 8-1 as being a particularly dovish sign and the inflation report forecasts are distinctly ‘steady-as-she-goes.’

The BOE is data-dependent and we expect wage growth to prompt the first rate increase in February, with some risk of a move in November.

Given the MPC’s remit for medium-term price stability, it was likely to look through the effect of temporary influences on the headline rate of inflation. And an intention to do so seems to be borne out, both in the inflation report and the minutes to the policy meeting, meaning the latest movements in oil prices and the currency shouldn’t be a significant impediment to lifting rates.

Jamie Murray, Bloomberg Economics

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