BASELINE
The Bank of England (BoE) is expected to hold the Bank Rate steady today at 4.00% and the QT pace unchanged. The vote split is expected to be 6-3 in favour of a hold with Dhingra, Taylor and Ramsden voting for a cut (Dhingra and Taylor could vote for a 50 bps cut but it won’t be unexpected). The central bank will also release updated economic projections where a slight downward revision to inflation is expected and a new minutes format that includes individual perspectives from MPC members.
Some are expecting a surprise cut given the 25% probability from
the market pricing, but I think it’s very unlikely at this meeting as it
makes much more sense to wait another month to see the Autumn Budget
and get more data ahead of the December meeting. In fact, the BoE will see two more employment and inflation reports before the next meeting.
STATEMENT
The statement is expected to remain mostly unchanged including the key lines “a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate” and “monetary policy is not on a pre-set path”.
ECONOMIC PROJECTIONS AND NEW MINUTES FORMAT
The economic projections are expected to show a downward revision to near term inflation forecasts given the latest data. The focus will be on the new minutes format that will include individual perspectives from MPC members. Right now, we have a dovish camp (Dhingra, Taylor and slightly less Ramsden), a moderate camp (Bailey and Breeden) and a hawkish camp (Mann, Greene, Pill and Lombardelli). These camps are based on their recent comments and history of dissents.
Market’s expectation on the December cut will be shaped by the views of the members, especially those in the moderate camp (Bailey and Breeden) as they are enough to secure a majority. In fact, today’s decision will be all about Governor Bailey’s views as Breeden always voted alongside the Governor. That also holds true for the accompanying press conference.
The market expects the central bank to open the door for a cut in December, so if we get that, it shouldn’t be surprising but it could still weigh on the pound as rate cut probabilities would increase. On the other hand, the pound could strengthen if we don’t get any signal or hint for a December cut, or even a pushback against market’s expectation
