BoE Monetary Policy Summary, Meeting Minutes and Inflation Report

Jarratt Davis

Special Consultant to the FPA
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BoE Monetary Policy Summary, Meeting Minutes and Inflation Report will be released today at 12pm BST.

There is no expected change with regards to interest rates, so the initial reaction will come from any surprises in the vote count. If any member votes to cut rates then sterling will drop. Direction in GBP will then be a function of the tone of the MPS where a dovish outlook will see the currency pressured. After that, the market will be looking to the Bank’s forecasts in the QIR, where a focus on downside risks from Brexit will also see the GBP fall. Absent any dovish tones or downgraded forecasts, the currency may see upside. There is a lot of information coming out at the same time so that information will have to be assimilated before confirming any sustained moved in the GBP.

Description:

The Bank of England meet eight times per year for their monetary policy decisions. The Bank announce the Official Bank Rate and release their Monetary Policy Summary and MPC Meeting Minutes at the same time. The minutes contain the votes for the Official Bank Rate and Asset Purchase Facility for each of the nine MPC members. The breakdown of votes provides insight into which members are changing their stance and how close the committee is to enacting a change in monetary policy. The vote is reported in an X-X-X format; the first number is MPC members who want to raise rates, second to cut rates, third to keep on hold.

The Monetary Policy Summary contains commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.

On a quarterly basis, the BoE also release their Inflation Report. The QIR includes the BoE’s projection for inflation and economic growth over the next 2 years. The BoE Governor, Carney also holds a press conference to discuss the report’s contents after release. The QIR provides valuable insight into the bank’s view of economic conditions and inflation; these are the key factors that will shape the future of monetary policy and influence their interest rate decisions.

Summary:

The key focus for the GBP of late has been the Brexit referendum. Latest polls show 46% to stay and 43% to leave. The margin has become tighter in recent months which keeps the GBP from rallying. Cable has been in an 850-pip range since the start of 2016. The market will be watching closely for any change in the votes to change interest rates. The last vote was 9 in favour of keeping rates on hold. There is always a risk of one of the more dovish members voting to decrease rates. This would result in a 0-1-8 vote and will pressure sterling.

The tone of the MPS will be important, especially if there’s any optimism around the recent tick higher in core inflation. The main focus of this whole risk event will be the QIR, which will contain the MPC’s outlook for the economy; the market will be watching to see if Brexit risks play a major role in the Bank’s outlook. We will also hear a speech from Carney where volatility in sterling is likely to continue.

BoE Monetary Policy Summary, Meeting Minutes and Inflation Report release was also covered in weekly risk events video here.

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