All eyes are on the Bank of England on Thursday, as the bank releases its first monetary policy decisions since it made history in August by cutting interest rates to a new record low of just 0.25%.
On Wednesday, governor Mark Carney chaired the first meeting of the central bank’s nine-person Monetary Policy Committee since the rate cut on August 4, and at 12:00 p.m. BST (7:00 a.m. ET) the policy decisions made in that meeting will be revealed by Britain’s central bank.
The MPC is the group within the BOE that is responsible for steering monetary policy in the UK by setting interest rates, and inflation targets.
After just over a month of the central bank’s new monetary policy measures, which included an extensive new programme of quantitative easing alongside the rate cut, it is highly unlikely that Carney and the rest of the MPC will decide to take any new action. Of all the economists and forecasters Business Insider spoke to prior to today’s decision, not a single one sees any new policy moves on Thursday.
Regardless of the expected lack of action, the minutes of Wednesday’s meeting will be the subject of much scrutiny.
In the weeks since the historic rate cut, economic data out of the UK has broadly surprised to the upside, confounding the predictions of many experts who believed a substantial downturn in the British economy would immediately follow the Brexit decision. In the past couple of weeks we have seen unemployment continuing to fall, inflation holding steady — despite the fall of the pound — and a huge rebound in PMIs for the manufacturing, construction, and services sectors.
As a result, the Old Lady of Threadneedle Street’s comments on the broad UK economic situation will be of much interest, particularly after governor Carney suggested last week that he was pleasantly surprised by the better than expected data. Prior to the Brexit vote, Carney and other MPC members had suggested that a technical recession could manifest itself in the UK if Britain decided to leave the EU.
The BOE, and particularly Carney have faced significant criticism from certain sections of British politics in recent weeks for those predictions. At a hearing in front of the House of Commons Treasury Select Committee last week, Carney was told by chairman Andrew Tyrie that the “charges” against him included accusations that he had “over-egged” warnings about the negative economic impact of the referendum prior to the vote, and then essentially tried to justify these warnings in the aftermath of the vote.
Carney was also accused of holding a “gun to the head” of chancellor Philip Hammond when he asked Hammond to grant the Bank of England an indemnity approving of the term funding scheme introduced by the bank at the beginning of August, arguing that Hammond had virtually no choice but to grant the indemnity. Carney firmly denied that suggestion.
Any formal response to such allegations from the bank will be keenly watched.
When will the next action come?
While no cut or extension of quantitative easing is expected at September’s meeting, many forecasters expect the BoE to follow up on the guidance it gave at the August meeting, which was pretty clear in showing that most of the nine-member committee backed another rate cut before the end of 2016, most likely in November.
Market expectations seem to be that the bank will cut to 0.1%, but not much lower, especially seeing as numerous MPC members have almost entirely ruled out taking interest rates into negative territory. Carney himself effectively drew a line in the sand in August, saying: “We’re not intending to move to negative interest rates. At least, I’m not intending to move to negative interest rates.”
“Take that off the table from me.”
The bank’s minutes could provide further guidance on when, and in what form, a new rate cut will come.
Prior to the decision, key British markets are fairly sanguine, appearing to be in wait-and-see mode for later in the day. Around 8:50 a.m. BST (3:50 a.m. ET) the British pound is down a little against the dollar to $1.3213, a fall of 0.18% on the day:
In equities, the FTSE 100 blue-chip index is also taking a leg down on the day, off around 0.2% to 6,659 points:
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