Central Banks

BOE announces its latest monetary policy decision – 1 November 2018

  • Prior decision 0.75%
  • Official bank rate votes vs 0-0-9 expected
  • Asset purchase target £435 bn
  • Corporate bond target £10 bn


Here’s the statement details and the inflation report details:

  • Ongoing tightening of monetary policy appropriate if economy grows as forecast
  • Any future increases in bank rate likely to be at gradual pace and to be a limited extent
  • Market interest rate implies slightly steeper rise in bank rate
  • That means reaching 1.4% by late 2021 (in August this was 1.1%)
  • Monetary policy response to Brexit is not automatic, could be in either direction
  • Forecasts growth of +0.6% q/q in Q3, +0.3% q/q in Q4
  • Forecasts growth of +0.4% q/q in subsequent quarters
  • Cuts 2018 GDP growth to +1.3% (August +1.4%)
  • Cuts 2019 GDP forecast to 1.7% (August +1.8%), forecasts GDP at 1.7% for 2020, 2021
  • Sees UK CPI at +2.1% at 1-year horizon
  • Sees UK CPI at +2.1% at 2-year horizon
  • Sees UK CPI at 2.0% at 3-year horizon

There’s not much the central bank can do as their hands are tied with regards to Brexit so this is about as non-event as it gets. However, there is a slight hawkish tilt to the report here in terms of language. The MPC is viewing a steeper rate path and they also view that inflation is to hold above 2.0% at the very least throughout the time period in which they foresee they will raise rates. They’re also optimistic about Q3 growth although that can be seen as a bit of a one-off.

Despite the slight cuts on growth forecasts, it seems like the only thing that will stand in the way of the BOE moving to hike rates further is Brexit. They won’t move to raise market expectations just yet until that is out of the way but subtle hints like the above should be noted as we move into 2019.

Over to you now, Mr. Carney.

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