The Bank of England expectedly left monetary policy unchanged today, and thus issued no statement. Minutes of the meeting will be out in roughly two weeks, but the August meeting and the new inflation report will be more interesting. Quick rate hikes are still not on the cards.
After Mr Carney’s somewhat mixed signals, the uncertainty over UK monetary policy has increased. So far, none of the Monetary Policy Committee (MPC) members have been in favour of changing policy. The last time there was a disagreement on the policy decision was in June last year, but such unanimity could soon be a thing of the past.
Looking ahead, August will be interesting. First, the new inflation report (published on 13 August) will provide the MPC with fresh analysis on the amount of spare capacity and the economic outlook. Second, the incoming Deputy Governor Shafik will join the MPC, marking the third new member in just a couple of months. She commented earlier this week that the pace of the recovery was striking and BoE would probably revise down its estimate of the slack in the economy next month.
Despite the strong growth momentum and improving labour market, notable spare capacity remains and cost pressures remain low. In addition, the rather soft macroprudential measures announced to cool the housing market imply the BoE is not too concerned about the housing market for now. We thus do not expect the first rate hike until well in 2015 – somewhat later than the current market pricing of early next year.
Nordea