MNI BOE WATCH: Budget Proximity Gives MPC Cover For Nov Hold
With the Nov 26 UK Budget drawing near, what already appeared to be a tight call for Bank of England policymakers this week due to sticky inflation alongside a slowing labour market will be made tougher as they attempt to second-guess fiscal policy for 2026/27, leaving the Monetary Policy Committee split and likely to keep the policy rate on hold.
The MPC voted to keep Bank Rate on hold in September, having narrowly voted for a 25-basis-point cut in August. Governor Andrew Bailey has indicated in speeches at the annual IMF/World Bank autumn gatherings and elsewhere that rates remain on a downward trajectory, though the pace of cuts was uncertain.
Going into the November meeting, the MPC appears split with little new information to have shifted voters from their August positions. However, the proximity of the Budget could persuade the centrists on the Committee to await Chancellor Rachel Reeves's fiscal maths, effectively delaying a decision on rates to either December or February. (See MNI INTERVIEW: BOE Dec Cut Chances Overestimated - Saunders )
Data since the last meeting has shown that inflation probably peaked slightly below where the Bank had forecast, with many now seeing September’s headline CPI reading of 3.8% as a cycle high. However, despite slowing wages and a sluggish labour market, inflation is not expected to reach the 2% target until H1 2027. (See MNI INTERVIEW: BOE Should Hold In November - Sentance )
COMMUNICATONS
Financial markets will also be closely watching the Bank’s new communications strategy, as it gradually conforms with the recommendations of the 2024 Bernanke Review.
From this month forward, the quarterly policy decision communications will include rules-based policy rate paths, reintroduced scenarios and more detailed inputs to monetary policy decisions, officials have said.
The officials confirmed that the MPC will publish a slimmed down Monetary Policy Summary at every meeting, alongside minutes which will include individual member opinions running to up to around 200 words each. The overview summary of where the committee sits as a whole will still be provided.
The BOE will also publish alternative scenarios and alternative projections to the Central Projection -- still based on market rates -- illustrating "how things might turn out differently from the central case in ways that reflect the most pressing policy concerns right now."
RATE PATH
There will also be some analysis of alternative indicative paths for interest rates attached to both the alternative scenarios and the central projections, which will be numerical rather than just qualitative, officials noted. (See MNI INTERVIEW: Bernanke Forces BOE Rate Path Verdict - McMahon )
However, while the rate paths will be lines on a chart, they will not be dot plots and will not be MPC forecasts. The rate paths will not be determined by the MPC, but will be based on policy rules derived from the economic literature as set out in papers published in mid-October.
The MPC will no longer publish forecasts on a Constant-Market rate basis, a metric that few in the Bank use.
