BoE leaves policy unchanged and keeps door open for further stimulus - ING

James Knightley, Senior Economist at ING, suggests that the BoE members took a unanimous decision to leave policy unchanged, but a majority still think they will cut rates should the data pan out as anticipated.

Key Quotes

“The Bank of England left monetary policy unchanged at today’s MPC meeting, as expected, with the decision being unanimous. Importantly they indicated that a rate cut before year remains a possibility. They repeated the statement that should the economy proceed as the BoE predicted in August, “a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of this year”.

The Bank did acknowledge that some data has been “somewhat stronger than expected” and that they “now expect less of a slowing in UK GDP growth in the second half of 2016”. Asset prices have also performed better than anticipated with financial conditions loosening in response to the BoE’s aggressive stimulus at last month’s MPC meeting. However, business surveys have weakened and that when taken in aggregate suggest to the BoE that “business spending would slow more sharply than consumer spending”.

For now, there isn’t a strong case for additional stimulus, but we are a little concerned that activity could weaken now that Brexit is much more in the news after a summer lull. Arguments and animosity about the situation along with the uncertainty that Brexit creates are likely to weigh on sentiment as the positive effects of the Olympics and a warm end to the summer start to fade.

In any case, fiscal stimulus may be more effective over the medium term and for that we will have to wait for the Autumn Budget Statement on November 23rd. This is after the BoE meeting (Nov 3rd) so whether or not the BoE get any clues as to what the Chancellor might do could have a significant influence on the outcome of that MPC meeting.”