Wednesday, July 20, 2011

The minutes to the Bank of England’s July MPC meeting

The minutes to the Bank of England’s July MPC meeting showed that the committee voted 7-2 in favour of keeping rates at 0.50% with Chief Economist, Spencer Dale, and Martin Weale voting for an immediate 25 bps rate rise. Adam Posen remains the only member voting for an expansion of QE.

The key change in the minutes is that the BoE has acknowledged the recent run of softer data, which had “reduced the likelihood that a tightening in policy would be warranted in the near term”. They also stated that “there was no clear evidence that higher inflation expectations had begun to feed through into wage-setting behaviour”, i.e. no sign of second round price effects. Consequently, the market remains comfortable with our view that the first rate hike will NOT happen until ‘late’ 3Q12.

That said, the 2 members voting for a hike stated that “the argument for removing some of the monetary stimulus at this meeting had remained strong” given ongoing elevated inflation. Furthermore the Bank of England also released its Agents’ summary on the state of the economy and that showed healthy readings. Indeed, it said investment intentions continue to increase and employment intentions “indicated ongoing job creation in the private sector”. Export growth “remained strong”, manufacturing output “continued to grow”, but nominal spending on consumer goods and services “remained sluggish”. They also stated that inflation pressures remain high.

Published: 20 July, 2011
written by: Bill Hubard , Chief Economist at