Bank of England’s Monetary Policy Committee paused for a breath – London Business News | Londonlovesbusiness.com

As had been fully expected, the Bank of England’s Monetary Policy Committee decided to maintain Bank Rate at 5.00% today, taking a pause for breath having delivered the first cut of the cycle in August.

Despite standing pat on rates, the MPC remain divided on the appropriate course of policy action, albeit to a lesser extent than last time out.

The Committee voted by 8 to 1 in favour of maintaining Bank Rate, with just external member Dhingra dissenting in favour of a second-straight cut.

Though speeches from BoE policymakers have been thin on the ground of late, this degree of dissent is not especially surprising, and is broadly in line with Dhingra’s well-known prior views.

Along with the decision, the BoE issued a near carbon copy of the statement issued last time around. Once more, policymakers stressed a need for policy to remain “restrictive for sufficiently long” in order to stamp out lingering signs of persistent inflation within the economy. Furthermore, the MPC stressed that policy is not on a pre-set course, with the Committee again pledging to decide on the “appropriate” degree of restriction on a meeting-by-meeting basis.

Turning to the balance sheet, the MPC maintained the pace of run-off at £100bln for the next 12 months, though this will see a rather large fall in active gilt sales to just £13bln next year, owing to the whopping £87bln of redemptions over that period. Nevertheless, this pace will continue to see the balance sheet working against Bank Rate, with the former tightening conditions, and the latter loosening them.

On the whole, the September MPC decision is unlikely to be a game-changer for the BoE policy outlook. Once again, the Committee stressed a relatively patient approach towards further normalisation, which remains warranted given the relatively persistent nature of underlying price pressures within the UK economy. Quarterly cuts, of 25bp apiece, remain my base case for now, leaving the ‘Old Lady’ likely to deliver just one more cut this year, at the November MPC, in conjunction with the latest round of economic forecasts.

This outlook, of course, is rather more hawkish than that outlined by other G10 central banks, including the FOMC, who delivered a ‘jumbo’ 50bp cut yesterday. Consequently, the GBP is likely to remain underpinned in the medium-term, with 1.30 acting as a floor in cable for the time being.