Bank of England: Embracing a prudent accommodative cycle

As expected, the BoE decided to reduce Bank Rate by 25 basis points to 4% at today’s monetary policy meeting . While stressing that risks for the medium-term path for the CPI inflation were two-sided , the Monetary Policy Committee (MPC) considered that disinflation in underlying domestic price and wage pressures had generally continued . The meeting experienced an historical spilt vote with 4 MPC members (Andrew Bailey, Sarah Breeden, Swati Dhingra and Dave Ramsden) in favour of cutting Rate by 25bp , 4 MPC members (Megan Greene, Clare Lombardelli, Catherine L. Mann and Huw Pill) preferring to maintain the Rate at 4.25% and 1 MPC member (Alan Taylor) supporting a 50 bp cut . Th is required a second round of vote to secure a majority decision during which Alan Taylor accepted to reduce its objective by accepting a 25bp cut. Consequently, the MPC voted by a majority of 5–4 as we expected. During the press conference, Governor Bailey underscored that the ongoing disinflation process was driving by UK domestic factors. Among these, he stressed that the saving rate was higher than initially expected by the MPC, so weighing on private consumption while elevated uncertainty from worldwide situation encouraged led to delaying business investment. By contrast, the MPC postponed the decision on the path of quantitative tightening. Instead, MPC members set 3 principles (Bank Rate is the monetary policy stance tool, sales should not disrupt market functioning and are conducted in a gradual and predictable manner) to guide this decision in next September. Against this background, we continue to see a reduction of the pace of QT for the 12 months starting in October from the current £100 billion to £ 60 billion (including net sales for an amount of £11 billion) and a Bank Rate cut of another 25bp in November.