MNI: BOE Keeps Bank Rate At 4%, APF Reduction GBP 70Bln

The Bank of England's Monetary Policy Committee voted to keep Bank Rate at 4%, although again on a split 7-2 vote, with Swati Dhingrha and Alan Taylor both favouring a further cut of 25bp.

The MPC also voted to reduce the scale of bonds held for monetary policy purposes by GBP70 billion. This was a cut to the overall annual reduction in the Asset Purchase Facility from the previous year's GBP100 billion, but active sales increased to GBP21 billion from GBP13 billion.

There was a split vote on QT scale as well. Chief economist Huw Pill wanted to see a total of GBP100billion, while Catherine Mann voted for GBP62 billion.

The two members voting for a cut pointed to a continuation of the disinflation process, subdued consumer and investment and slowing wage growth.

The seven voting with the proposal had a range of views on the balance of inflation risks, and said the gradual and careful approach remained appropriate.

Overall, guidance from the MPC remained unchanged on the August statement.

In a note to journalists, Governor Andrew Bailey said inflation was expected to return to the 2% target, but "we're not out of the woods yet so any future cuts will need to be made gradually and carefully."

GILT SALES

On QT, Bailey said the new GBP70 billion target for the coming 12 months helps reduce the balance sheet in line with monetary policy objectives, whilst minimizing the impact on gilt market conditions.

Announcing the reduced total reduction in the APF for the coming year, the BOE said sales would be weighed towards the short and medium end of the curve. A market note published alongside the policy statement suggested a bucket weighing of 40/40/20 on sales.

According to the current schedule, the BOE plans 9 short auctions, 8 medium auctions and 3 long auctions - with all of the planned sales for the Oct-Dec period expected ahead of the Government's Nov 26 Budget.