Closing post
Time for a recap.
City economists are predicting the Bank of England will cut interest rates in August, after leaving borrowing costs unchanged today.
Several analysts believe the BoE will vote to lower rates at its next meeting, in six weeks time, given signs that inflation is easing.
The Bank’s Monetary Policy Committee left base rate unchanged today at 5.25%, in a 7-2 split.
But the seven MPC members who voted for no change were themselves split, with three reportedly in a group whose vote was finally balanced. This may have included BoE governor Andrew Bailey.
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- Bank of England holds at 5.25%, with a 7-2 vote against a cut
- BUT, decision “finely balanced” for 3 holds, probably including Governor, which mean it was a close run thing not to cut
- Those 3 members playing down sticky services inflation
- August cut very much on
James Lynch, fixed income investment manager at Aegon Asset Management, says:
“It appears the nine-member committee is in three camps. Two voted for cuts again at this meeting, ‘some’ argue that more evidence of diminishing inflation persistence was needed before reducing rates, and for ‘other’ members the recent news did not alter their view on the disinflationary trajectory we are on.
We of course do not know how many is ‘some’ or ‘others’ but given the overall dovishness of the minutes it would appear the ‘some’ might be enough to get the five votes over the line for a cut in August.”
The poud weakened below $1.27 against the dollar, while UK bond prices strengthened, and shares rallied in London.
Andrew Bailey, the Bank’s governor, said:
“It’s good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”
Bailey was among seven members of the nine-member MPC who voted to leave rates on hold. Swati Dhingra and Dave Ramsden voted for a quarter-point cut to 5%.
But the Bnak was criticised by the IEA, and the IPPR, for not lowering borrowing costs.
Here’s the full story:
Analysts at Japanese bank Nomura predict the Bank will cut rates in August – when some of the seven policymakers who voted for no change today will have shifted their vote.
They say:
While all of the seven members voting for no change agreed that a) policy was weighing on activity, b) the labour market was loosening and c) inflation persistence was moderating, this group split into two distinct camps this time. One camp (“some” members) continued to worry about high services and wage inflation, second-round effects and strong demand – thereby arguing more evidence was needed to be sure that inflation persistence was abating sufficiently. But another camp (“other” members) was at pains to dismiss recent service and wage inflation strength and argued the June decision was finely balanced.
While we don’t know how many members were in these camps (nor which Ben Broadbent was in – he leaves the Committee at the end of this month), it does suggest that more MPC members believe it will soon be appropriate to begin cutting rates.
