BoE not playing the ‘not to be out-hawked by the Fed’ card
The BoE went for 50bps today, taking the base rate from 1.75% to 2.25%, which was in line with market expectations. There were 5 members in the camp for 50bps, 1 for 25bps, and 3 for 75bps. Reading the summary of the meeting, it is clear that the November meeting will be more meaningful: we will have heard from the new Chancellor, and we will have his plans for tax cuts and spending increases in greater detail. We will also presumably have a better idea of gilt issuance, and the forecasts for growth and inflation by then will be able to take into account more fully the utility price cap – which has only just been announced. In that sense, this meeting feels a little low on “high conviction” monetary policy views. This meeting seems like a placeholder until the time at which the MPC can really look at the details of the policies coming from the new government, and the ways in which the economy starts to behave on the back of them. They are worried about cyclical downside risks and about domestically generated inflation. And those are contradictory and highly complex.
One interesting thing: do you need to hike to oblivion to bring inflation back down (like the Fed)? Or is the BoE right: the downturn that’s coming, and the base effects that are always and everywhere inevitable, will be enough to do the job?
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