By Samuel Indyk
Investing.com – The Bank of England announces its latest decisions on monetary policy on Thursday, in what is expected to be a relatively quiet meeting.
The central bank is likely to keep its Bank Rate unchanged at the record low of 0.10% and the asset purchase facility is likely to be held at £895bln (£875bln in gilts and £20bln in corporate bonds).
At the last meeting the Bank of England announced they would be slowing the pace of weekly asset purchases to £3.441bln per week from £4.44bln so they wouldn’t reach their total target before the end of the year. As a reminder, the BoE’s asset purchase programme is not open-ended, like the Fed’s or ECB’s, but is scheduled to come to a halt at the end of 2021. If the Bank of England had not slowed down the pace of purchases last month, then the target would have been hit before the end of the year, hence, why Bailey and co. said this was not a “taper” as such.
Vote split
Last month, outgoing chief economist Andrew Haldane voted to reduce the total assize of the asset purchase facility and has sounded hawkish signals since. It is unlikely that anyone will join him in voting to lower the bank’s QE package but there is an outside bet that one of the more hawkish members, most likely Dave Ramsden, could join him in this time.
It is also unlikely that any members of the Monetary Policy Committee will vote for an interest rate hike at his meeting but with-it being Haldane’s last meeting there is always a chance he could spring a surprise.
Comments on inflation
Inflation, measured by CPI, rose above the central bank’s 2.0% target last month. As is the case with most of the major central banks, the BoE saw this coming and said that any jump in inflation will likely be caused by transitory factors (base effects etc.).
“The minutes may acknowledge near-term upside risks for growth and inflation,” Lloyds (LON:LLOY) analysts said in an emailed note. “However, we expect a key message to be that the rise in inflation is temporary and that the Monetary Policy Committee is content to just monitor the situation for now.”
Coronavirus
Following the last meeting, the UK has had to delay its plans for reopening the economy and ending social distancing restrictions given the spread of the ‘Delta’ variant. Although case numbers are rising, hospitalisations and deaths are not yet following suit and there is hope that the four-week delay will be the last before the government can ease the last set of restrictions.
For now, the central bank should look through the delay as a minor bump in the road but if the spread continues and restrictions are ongoing or more are put in place, the Bank of England may have to acknowledge that the recovery could be slower than previously thought.
Market reaction
“A quiet MPC should leave GBP without much directional guidance as markets remain focused on USD risks, but investors are growing accustomed to more hawkish messaging,” writes TD Securities in a research note.
“This could leave GBP exposed if a dovish scenario emerges.”
There will be no press conference from Bank of England Governor Bailey following Thursday's decision.