MNI BOE WATCH: Seen On Hold; Number, Names Of Dissenters Key

The Bank of England is widely expected to leave its policy rate on hold at 4.25% at its June meeting and to keep its guidance unchanged, with many analysts expecting a seven-two decision on the Monetary Policy Committee, though with a possibility of a narrower margin.

In May the MPC split three ways over that month’s 25-basis-point cut, with five backing the decision, two voting for no change and externals Swati Dhingra and Alan Taylor voting for 50bps. This time Dhingra and Taylor are widely expected to call for a 25bp reduction, though cooling GDP and labour market data might prompt one or both them to vote for 50bp again, while another member, such as Deputy Governor Sarah Breeden, could prefer another 25bp reduction.

At the post-May-decision hearing with lawmakers on the Treasury Select Committee the splits on the MPC were clear, with Dhingra saying "we have held policy too tight.”

Governor Andrew Bailey was only convinced of the case for a cut because of adverse international developments while Breeden, on the other hand, said she would have backed a cut regardless.   

GRADUALISM

Typically, MPC members who have voted in the minority against a cut do not then seek to reverse it by backing a hike and if there is a surprise in the vote it is much more likely to be on the easing side.

May’s guidance, which stated that a "gradual and careful approach to the further withdrawal of monetary policy restraint remained appropriate", looks unlikely to be materially changed, with most MPC members still supportive of gradualism. (See MNI POLICY:  Perceptions Gap Between BOE Projections And MPC)

External MPC member Catherine Mann has repeatedly stated that she favours activism over gradualism, but guidance does not require unanimous backing. 

Aside from the vote, the MPC looks likely to accept that the bulk of evidence, including falling vacancies and softer pay awards, supports the view that there is growing slack in the labour market and that the underlying disinflationary process is on track, despite some disparities across surveys and official data. (See MNI INTERVIEW: Employment Law Hit To UK Productivity - Haskel)