| Consensus | Actual | Previous | |
|---|---|---|---|
| Bank Rate - Change | 0bp | 0bp | 0bp |
| Bank Rate - Level | 5.25% | 5.25% | 5.25% |
Highlights
Having opted to leave Bank Rate at 5.25 percent in September, the BoE MPC again chose to maintain the status quo in its November announcement. Back-to-back decisions to leave policy on hold followed 14 successive increases at previous MPC meetings and may bolster the view that the tightening cycle has run its course.
Even so, in line with September, the vote was split. Governor Andrew Bailey together with Ben Broadbent, Huw Pill, Dave Ramsden, and arch-dove Swati Dhingra all wanted no change. They were joined by newcomer Sarah Breeden who has replaced hawk Jon Cunliffe (who would probably have wanted to tighten). The three other MPC members, Jonathan Haskell, Catherine Mann and Megan Greene, repeated their previous call for a 25 basis point hike. Accordingly, at 6-3, today's outcome was only slightly less close than the 5-4 vote last time.
In terms of QT, the MPC also re-affirmed it will aim to reduce the stock of gilts held in the Asset Purchase Facility by £100 billion to £658 billion over the 12 months that began in October. At the start of November, the total QT stock of assets was £751 billion, comprising £750 billion of gilts and £0.6 billion of sterling non-financial investment-grade corporate bonds.
Today's interest rate decision comes on the back of a new Monetary Policy Report (MPR) that shows upward revisions to the medium-term inflation projections. The higher profile here will be seen by the hawks as further justifying their call for another increase in Bank Rate. Indeed, the MPC acknowledged that risks to the forecast are on the upside. However, the other members would seem to attach more weight to the growth projections which show a lower profile across the entire forecast horizon. In addition, the minutes note that most see an increasing impact of previous tightening on the labour market.
November's split vote means that for now, risks to stable official interest rates remain on the upside. Indeed, the bank signalled that it expects that"policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term." The bottom line is that inflation is still more than three times its target level and wage growth is nowhere close to being consistent with that mark. Both gauges will need watching very closely over coming months. That said, with recession potentially beckoning and the labour market on most measures showing some signs of loosening, a 5.25 percent Bank Rate at year-end still looks more likely than not.
Even so, in line with September, the vote was split. Governor Andrew Bailey together with Ben Broadbent, Huw Pill, Dave Ramsden, and arch-dove Swati Dhingra all wanted no change. They were joined by newcomer Sarah Breeden who has replaced hawk Jon Cunliffe (who would probably have wanted to tighten). The three other MPC members, Jonathan Haskell, Catherine Mann and Megan Greene, repeated their previous call for a 25 basis point hike. Accordingly, at 6-3, today's outcome was only slightly less close than the 5-4 vote last time.
In terms of QT, the MPC also re-affirmed it will aim to reduce the stock of gilts held in the Asset Purchase Facility by £100 billion to £658 billion over the 12 months that began in October. At the start of November, the total QT stock of assets was £751 billion, comprising £750 billion of gilts and £0.6 billion of sterling non-financial investment-grade corporate bonds.
Today's interest rate decision comes on the back of a new Monetary Policy Report (MPR) that shows upward revisions to the medium-term inflation projections. The higher profile here will be seen by the hawks as further justifying their call for another increase in Bank Rate. Indeed, the MPC acknowledged that risks to the forecast are on the upside. However, the other members would seem to attach more weight to the growth projections which show a lower profile across the entire forecast horizon. In addition, the minutes note that most see an increasing impact of previous tightening on the labour market.
November's split vote means that for now, risks to stable official interest rates remain on the upside. Indeed, the bank signalled that it expects that"policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term." The bottom line is that inflation is still more than three times its target level and wage growth is nowhere close to being consistent with that mark. Both gauges will need watching very closely over coming months. That said, with recession potentially beckoning and the labour market on most measures showing some signs of loosening, a 5.25 percent Bank Rate at year-end still looks more likely than not.
Market Consensus Before Announcement
The BoE is expected to hold policy steady for a second straight meeting. The bank last raised Bank Rate in August by 25 basis points.
Definition
The Monetary Policy Committee (MPC) of the Bank of England (BoE) comprises nine experts, five of which are senior central bank executives and the other four are external members appointed by the Chancellor of the Exchequer. The MPC previously announced its monetary policy with regard to interest rates and any unconventional policy instruments every month but this was changed when the meeting schedule was truncated to eight a year in 2016. With a view to enhancing policy transparency, as of August 2015 the minutes of the MPC's deliberations, which indicate how each member voted, have been released alongside the policy announcement. Forward guidance was introduced in August 2013 but since then its framework has become increasingly qualitative and now provides only limited information about where policy might be headed.
Description
The Bank of England determines interest rate policy at their Monetary Policy Committee meetings. These meetings currently occur during the first week of each month and are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of a change in the benchmark Bank Rate or unconventional monetary instruments. The MPC may or may not issue a post-meeting statement explaining its decisions in addition to the discussion’s minutes which, since August 2015, have been released alongside the policy announcement. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching. In the middle month of each quarter, the Bank publishes its Inflation Report, which provides a detailed analysis of economic conditions and the prospects for economic growth and inflation agreed by the MPC. This is now made available at the same time as the policy announcement and release of the minutes.
The Bank's monetary policy objective is to deliver price stability - low inflation - and, subject to that, to support the Government's economic objectives including those for growth and employment. A remit announced by the Chancellor in March 2013 hinted that the real economy may have a larger say in policy decisions going forward. Price stability is defined by the Government's medium-term inflation target of 2 percent, as measured by the annual change in the consumer price index. The foundation of the Bank's policy is the recognition of role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government's inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.
As in the United States, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on British markets - and to some extent those in Europe - can be dramatic and far-reaching. The interest rate set by the Bank of England, serves as a benchmark for all other rates. A change in the rate translates directly through to all other interest rates from gilts (fixed interest government securities named after the paper on which they were once printed) to mortgage loans.
The Bank of England sets an interest rate (Bank Rate) at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.
The Bank's monetary policy objective is to deliver price stability - low inflation - and, subject to that, to support the Government's economic objectives including those for growth and employment. A remit announced by the Chancellor in March 2013 hinted that the real economy may have a larger say in policy decisions going forward. Price stability is defined by the Government's medium-term inflation target of 2 percent, as measured by the annual change in the consumer price index. The foundation of the Bank's policy is the recognition of role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government's inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.
As in the United States, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on British markets - and to some extent those in Europe - can be dramatic and far-reaching. The interest rate set by the Bank of England, serves as a benchmark for all other rates. A change in the rate translates directly through to all other interest rates from gilts (fixed interest government securities named after the paper on which they were once printed) to mortgage loans.
The Bank of England sets an interest rate (Bank Rate) at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.
