The Bank of England is expected hold the Bank Rate unchanged at 3.75% with a 7-2 vote split with Pill and Green supporting a rate hike. There is a good chance we see a 6-3 vote split with Mann joining Pill and Greene. That wouldn’t be a total surprise though.
In fact, based on her recent comments, she’s the closest to switching vote. At the beginning of July she said that looser financial conditions would be key. Since then, conditions have tightened a little bit as traders fully priced in a rate hike by the end of the year with a 50% probability of an increase in September. UK yields have also increased since the last meeting, but the FTSE 100 just made a new record high which could be a signal of financial conditions not being tight enough.
The statement is expected to maintain the non-committal tightening bias saying “the committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term”. Traders will focus on the “as necessary” part, as a removal would be taken as hawkish and a signal of an imminent rate hike.
The BoE will also release the quarterly Monetary Policy Report with updated economic forecasts. The focus will be mainly on the projected peak for inflation this year which was lowered to 3.25% last month. In terms of economic data, UK inflation has come well below the BoE’s April projections, wage growth remained subdued, and there were little evidence of second-round effects in surveys or expectations data. All in all, it supports an extended pause but the renewed US-Iran tensions and increase in energy prices could still weigh on the BoE’s outlook.
After the decision, the attention will shift to the press conference where BoE Governor Bailey could still offer more details or even give policy signals.
This article was written by Giuseppe Dellamotta at investinglive.com.
