BoE Deputy Governor Ben Broadbent said yesterday that he hasn’t decide on his vote on the Bank rate in the upcoming meeting on August 2 yet. Markets were pricing in 80% chance of an August hike two weeks ago. But the chance dropped to around 50% after last week’s CPI miss. CPI had slowed notably from 3.0% in January to 2.4% in May, then stayed there in June. And, the impact of import inflation has faded much quicker than BoE has expected. Even if BoE does hike in August, it will be a one and done for the year.
Broadbent’s comment came after a speech on “The history and future of QE“. There he reiterated that the “framework” for unwinding QE was set out for some time in the November 2015 Inflation Report. That is, BoE would begin to start shrinking the balance sheet “only once the official Bank Rate had risen some way”. And that’s because “conventional policy is more flexible, better suited to responding to short-term economic fluctuations”.
At the initial guidance, Broadbent noted that the meaning of “well underway” means Bank Rate at “around 2%”. But in the June Monetary Policy Summary this year, the estimated threshold was lowered to “around 1.5%”. He also noted that “we don’t know exactly when that will be”. But, “the framework is designed to ensure that, should inflationary pressures weaken after that date, the first response would be to cut interest rates.” And,
“in principle, those disinflationary influences might include the process of QE unwind itself.”
