Bank of England holds steady in uncertain waters - Lloyds

Today, as expected the Bank of England left monetary policy unchanged on an unanimous decision. Analysts from Lloyds Bank, point out that the Monetary Policy Committee (MPC) will not be able to hike rates until late 2017.

Key Quotes:

“On the face of it, the BoE’s May Inflation Report still attempts to signal the likelihood of a policy tightening in the future, holding on to previous MPC guidance that the direction of travel for interest rates is upwards over the forecast horizon.”

“Relative to those from February, the Report’s inflation projections are stronger in the near term and little changed in the medium term, overshooting the 2% inflation target at the 2- and 3-year horizons – despite a backdrop of apparently elevated global and domestic uncertainties. In fact, the projections were less strong than we would have expected, given May’s update was conditioned on a close-to-flat path for interest rates”

“Nevertheless, with the focus on June’s upcoming EU referendum and the inherent uncertainty this brings to the economic outlook, it is apparent that the update to the MPC’s projections was at this stage a mere holding exercise.”

“In a repeat of a change also seen in February, on the BoE’s alternative projections based on unchanged interest rates at 0.5%, the inflation overshoot at both the 2- or 3-year horizons was pared back further. Movements in the market interest rates used as the conditioning assumption aside, that again indicates a reduced urgency to tighten policy at all – a policy inclination that feels consistent with our expectations that the MPC will not be able to muster a hike until late 2017, well beyond the consensus of economists’ forecasts.”