The Bank rate was kept unchanged at the first MPC meeting under Mr Carney, as widely expected. Moreover, the MPC decided against additional QE. As I wrote in my preview: “this week’s biggest surprise could be that the BoE issues a statement explaining why no changes have been made to the monetary policy stance.”
The statement has two interesting lines:
“In the Committee’s view, the implied [from the rise in market rates] rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy”, ie rates have increased too fast.
the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds. This analysis would have an important bearing on the Committee’s policy discussions in August”, ie forward guidance to be discussed in August and therefore no changes ahead of that.
All in all, no changes to the policy stance today, but a clear indication that forward guidance is the first priority, and, if rates remain at the current level, that forward guidance will be in a dovish direction in August.
Nordea