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 :
https://www.mnimarkets.com/articles/mni-interview-boe-dec-cut-chances-overestim
ated-saunders-1761747970183) 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:
https://www.mnimarkets.com/articles/mni-interview-boe-should-hold-in-november-s
entance-1761045121470 ) 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 :
https://www.mnimarkets.com/articles/mni-interview-bernanke-forces-boe-rate-path
-verdict-mcmahon-1751966014601) 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.
Nov-04 11:26
