Bank of England MPC unanimously vote to keep policy unchanged

The BoE kept its policy on hold today. The MPC voted unanimously to keep the rate on hold, on par with expectations. The minutes’ tone was a bit dovish, partially because of the uncertainty regarding the forthcoming Brexit vote. According to the minutes, there are certain signs that uncertainty regarding the EU referendum has started to weigh on certain activities. The minutes stated that certain decisions, like the ones on capital expenditure, are being postponed until after the EU referendum that might result in weakening of growth in H1 2016.

Moreover, the MPC thinks that the Bank Rate will more likely be needed to rise in the forecast period to make sure that inflation reaches the target rate. The minutes said that “however, referendum effects are likely to make macroeconomic and financial market indicators harder to interpret over the next few months, and the Committee is likely to react more cautiously to data news over this period than would normally be the case.”

If the UK votes to stay in the EU, a persistent rise in wage pressures is likely to sway the MPC’s majority that by the end of 2016, risks to the inflation target will skew to upside, according to Nordea Bank. Hence, the central bank is likely to first hike rates in Q4, assuming the UK votes to stay in the EU, noted Nordea Bank.

Meanwhile, headline inflation is likely to exceed 1% in the fourth quarter of 2016 with stronger wage pressure and diminishing drag from lower oil prices and non-energy import prices.

“Our CPI forecast, which incorporates a rising trend in oil prices, sees inflation reaching the 2% target in early 2017”, added Nordea Bank.