MNI BOE WATCH: Bank Holds Rates But Pares Scale Of Annual QT

The Bank of England voted to keep Bank Rate at 4% on Thursday, though the Monetary Policy Committee split seven-two, with Swati Dhingrha and Alan Taylor both favouring a further 25-basis-point cut.

The MPC also voted to reduce the scale of bonds held for monetary policy purposes by GBP70 billion, which like the rates decision was largely in line with market expectations (see MNI BOE WATCH: Seen Slowing QT And Holding Policy Rate ). 

The overall annual reduction in the Asset Purchase Facility was cut from the previous year's GBP100 billion, even as active sales are set to increase to GBP21 billion from GBP13 billion. (see MNI INTERVIEW: QT Raises Yields, BOE To Slow Sales- RF's Smith )

There was a split vote on the scale of QT as well, with Chief Economist Huw Pill wanting a total reduction of GBP100 billion, while Catherine Mann voted for GBP62 billion.

RATE SPLIT

The two members voting for a cut in Bank Rate again pointed to a continuation of the disinflation process, subdued consumer spending and investment and slowing wage growth. Taylor had voted initially for a 50bp cut in August, before opting for 25bp on a second vote.

The seven voting with the majority proposal had a range of views on the balance of inflation risks, and said a 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 will help reduce the balance sheet in line with monetary policy objectives, whilst "minimising the impact on gilt market conditions."

Announcing the lower total size in the APF reduction for the coming year, the BOE said sales would be weighed towards the short and medium end of the curve. A market notice published alongside the policy statement anticipated an approximate weighting of 40% for short-term bonds, 40% for medium term and 20% for longer-term .

According to the current schedule, the BOE plans nine short auctions, eight medium auctions and three long auctions - with all of the planned sales for the Oct-Dec period expected ahead of the government's Nov 26 budget.