LONDON — The Bank of England will on Thursday announce the decisions made at the June meeting of its Monetary Policy Committee, and it is likely to be a pretty straightforward, uneventful affair.
It is widely expected that there won’t be any change to the bank’s monetary policy, with interest rates set to stay at a record low of 0.25%, and the bank’s QE programmes capped at £435 billion, despite the surge in the rate of inflation to the highest level since mid-2013.
Falling sterling has pushed up the price of importing goods, passing through to everyday items that regular Brits buy. This is now showing up in official inflation data, which at the latest reading sat at 2.9%.
In normal circumstances, such high inflation would likely push the bank to increase rates, but it must also balance the fact that the wider British economy is set to slow sharply in 2017, driven by Brexit-related uncertainties, and that the sharp growth in inflation seen in the UK right now is likely to be temporary.
Consequently, it seems likely that the bank will not only leave rates unchanged but that the composition of the vote will not shift either. Last month the bank voted 7-1 in favour of leaving rates on hold, with the notoriously hawkish Kristin Forbes the only dissenter.
Forbes, who is leaving the bank this summer, is unlikely to change her mind.
“Although Kristin Forbes will probably use her last MPC meeting to vote for a rate hike, mixed evidence on the economy means that the odds of other members joining her are slim,” Martin Beck of Oxford Economics wrote in a note to clients
It is worth noting that only eight members sat at the MPC’s meeting this week following the resignation of Deputy Governor Charlotte Hogg in March. Hogg’s replacement is expected to be announced fairly soon.
One reason for the bank’s expected reticence to hike is the unstable political situation in the UK following the Conservative Party’s failure to win a majority at last week’s election.
“Uncertainty flowing from the general election is another reason for inaction,” Beck writes.
That’s a view backed up by Mike Bell, a strategist with $ 1.7 trillion asset manager JPMorgan Asset Management, who wrote on Tuesday: “The medium term outlook for the UK economy was uncertain before the election, now the Bank of England’s crystal ball looks even more opaque. Unfortunately, they cannot ignore the political clouds of uncertainty obscuring their outlook as the outcome of the upcoming negotiations a key issue facing the UK economy.
“Yet they cannot react based on hunches that the recent political result will lead either to a softer Brexit or a cliff edge Brexit.”
In short, don’t expect any fireworks from the bank on Thursday.