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UK CommentPreview Bank of England: The MPC to wait and see

  1. Monetary policy to be left unchanged
  2. New data since August somewhat on the strong side
  3. Downside risks warrant cautiousness
Monetary policy to be left unchanged
The Monetary Policy Committee (MPC) of the Bank of England (BoE) will meet on Thursday, November 1, with its decision due to be released at 13:00 CET. The last Inflation Report of 2018, with updated forecasts and a new assessment by the MPC, will also be published on that day alongside minutes from the monetary policy meeting. At its August meeting, the MPC decided unanimously to raise the policy rate to 0.75 percent from 0.5 percent. At its September meeting, the MPC reiterated the message from August; that and ongoing tightening of monetary policy over the forecast horizon would be appropriate provided that the economy developed broadly in line with the BoE’s projections. In August, the conditioning path indicated two more policy hikes by the end of 2020. However, regarding Brexit, the MPC noted in September that there had been indications of greater uncertainty about future developments in the Brexit withdrawal process. The MPC underlined that its outlook for the UK economy and expectations for further monetary policy tightening, hinged upon the assumption that the Brexit adjustment process would be smooth and orderly. Since the September meeting, the Brexit outcome has certainly not become any clearer, in our view.
New data since August somewhat on the strong side
When it comes to the real economy, it looks as if the trend is slightly stronger than the BoE’s estimates in August, but in line with its updated September expectation for GDP growth of 0.5 percent in Q3. Labour market trends seem broadly in line with the BoE’s forecast. Wage growth has picked up more than expected, but CPI inflation is in line with the BoE’s forecast. Global downside risks, if anything, have increased since August.
Downside risks warrant cautiousness
The MPC struck a somewhat more dovish tone in September than in August, we thought, pointing to global risks and Brexit uncertainty. Given the still highly uncertain Brexit outcome and prevailing global risks, we believe the Bank of England will not rush to signal tighter monetary policy despite slightly stronger data since August.

Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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