Mucho boring.
As widely expected, the Bank of England voted to hold interest rates at a record low of 0.5 per cent and keep its asset purchasing programme at £175bn.
Here’s the statement:
BANK OF ENGLAND MAINTAINS BANK RATE AT 0.5% AND CONTINUES WITH £175 BILLION ASSET PURCHASE PROGRAMME
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to continue with its programme of asset purchases totalling £175 billion financed by the issuance of central bank reserves.
The Committee expects the announced programme to take another month to complete. The scale of the programme will be kept under review.
The minutes of the meeting will be published at 9.30am on Wednesday 21 October.
ENDS
Next up on Thursday is the ECB’s rate decision — which is also expected to be mucho boring.
To liven things up a bit, here’s a preview by JP Morgan’s Malcolm Barr on the BoE’s upcoming November rate decision — which many economists expect could be when the central bank decides to increase quantitative easing and/or cut the remuneration rate it pays on bank deposits:
Commentary from Miles and others last week suggested a change in reserve remuneration was not imminent and was seen of second order importance. Though a change tomorrow is not impossible, our best guess is that this will happen at the November meeting, with around 90% of the outstanding reserve stock being paid the 0.5% bank rate, and the remainder being paid zero. We still find it difficult to explain why a change in this regard is taking so long to finalise and be put before the MPC (even if it is not regarded as a high-impact policy change).
The MPC has explicitly sought to align decisions on the amount of QE with inflation reports, hence the universal expectation of no change tomorrow [Thursday Oct. 8]. But in the wake of yesterday’s ugly industrial production report, the call that the MPC would choose not to extend QE in November has been challenged. The MPC’s August forecasts for GDP, as best as we can tell, saw an 0.3% q/q gain in GDP in 3Q, and 0.7% in 4Q. We now look likely to print near 0.1% for 3Q. Meanwhile, the dip in the September manufacturing PMI and the failure of the index of services to deliver on the promise of the services PMI raise questions about 4Q. Given the MPC’s apparent determination to see a pick up in activity which begins to absorb slack, that suggests a further extension of QE in November looks more likely than not. We have hence changed the forecast to pencil in a £25bn move, taking purchases up to £200bn; we would expect that to be the outcome of a three way split vote on the MPC (some will want to stop, while some will want a £50bn extension). If those £25bn of asset purchases are spread out until the February Inflation Report, it would also carry the implict suggestion that the pace of purchases is being tapered off and will end in February.
Even as we pencil in a further modest extension of QE in November, our concerns about how headline inflation will behave in the early part of next year are growing. Our utilities team no longer believe that significant cuts in electricty and gas bills are likely this year, although the prospect of reductions in the Spring remains if current levels of wholseale energy prices are sustained … Note the 3.5% oya forecast for CPI in January, which would prompt an open letter from the Governor to the Bank of England to the Chancellor. Indeed, it is not too much of a stretch to think that, if global energy prices were to rise, we could also see a second letter after the April data (the letter has to be written every 3 months if CPI remains above 3%). The MPC have recognised that the inflation data are likely to be “extremely volatile” in the coming months, but do not appear to be placing a lot of weight on that as an influence on their medium term views on inflation. Given that an increase in VAT accounts for much of the inflation bump, there are grounds for them to do so. But the combination of well above target inflation, a central bank which has enacted QE on a large scale, a wide fiscal deficit, and an election campaign strikes us as a potentially volatile cocktail of circumstances for the first half of next year. Particularly if the MPC is going to extend QE in November (and even if they don’t) we hope it will give a lot more profile to a PR campaign encouraging market participants to look through a bounce in inflation early next year.
A “volatile cocktail of circumstances”.
That’s less boring, right?
Related link:
Bank of England decision preview – Money Supply