BOE Unanimous on Policy as MPC Sees Little Case for EasingScott Hamilton
Bank of England officials voted unanimously to keep policy unchanged this month as economic data pointed to a “robust” recovery.
The nine-member Monetary Policy Committee, led by Governor Mark Carney, voted 9-0 to keep the target of their quantitative easing program at 375 billion pounds ($606 billion), according to the minutes of the Oct. 8-9 meeting published in London today. All members also agreed to hold the benchmark interest rate at a record-low 0.5 percent.
“The news on the month had continued to suggest a robust recovery in activity,” with confidence rising and surveys pointing to growth of about 2 percent over the second half of the year, according to the minutes. “Market rates had fallen back over the month and output appeared to be expanding at least as fast as expected” in August. “All members therefore agreed that there was currently little case for increasing the degree of monetary stimulus further.”
The pound stayed lower against the dollar after the report and was trading at $1.6172 as of 9:31 a.m. in London, down 0.4 percent on the day. The benchmark 10-year gilt yield was 4 basis points lower at 2.6 percent.
Carney introduced forward guidance in August, saying officials will not raise the key rate at least until unemployment, now at 7.7 percent, drops to 7 percent.
While officials forecast that won’t happen before 2016, they noted this month that improving labor market conditions indicated that slack in the economy was being eroded “a little faster” than forecast in August.
Investors are betting on a faster increase in interest rates as one of the policy’s inflation-linked clauses is triggered or joblessness declines faster than the monetary authority predicts.
All committee member agreed that neither the inflation linked knockouts nor the financial stability clause had been breached. “No MPC member thought it appropriate to tighten the stance of monetary policy at the current juncture,” the minutes said.
The U.K. economic recovery has gained momentum this year and the International Monetary Fund this month raised its growth forecast for the country.
Data this week will show economic expansion accelerated to 0.8 percent in the third quarter from 0.7 percent growth in the previous three months, according to the median forecast of 40 economists in a Bloomberg News survey. That would be the fastest rate of growth since the second quarter of 2010. The number will be released by the Office for National Statistics on Oct. 25.
The pound’s gain may ease the pressure on real incomes by dampening import price inflation, while also weighing on export growth in the medium term, BOE officials said.
Sterling appreciated about 4.6 percent in the past six months through yesterday, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Officials also noted that the outlook for the U.S. economy had softened slightly on the month, the recovery in the euro area remained modest and there was a risk of a sharp slowdown in emerging economies.
“Overall, therefore, there was a risk that the recovery in the U.K. might be less well balanced between exports and domestic consumption than was ultimately needed,” the BOE said. Medium-term inflation expectations remained “sufficiently well anchored.”