Halister News

(Bloomberg) -- (Updates with comments from the BOE press conference) U.K. rate setters said that monetary policy could be eased further or tightened in response to changes in the economic outlook, as the BOE left policy on hold.

• The key points from BOE statements follow; monetary policy summary here and Inflation Report here

DID BOE ADJUST RATES, QE?

• The bank kept key rate at 0.25%, the gilt purchase program at GBP435b, and the corporate-bond plan at GBP10b
• Analysts no longer expected any easing this month after stronger than forecast 3Q; Goldman pushed back its BOE rate cut call to Feb. from Nov. and HSBC no longer expects the bank to cut rates this month

HOW SPLIT WAS THE VOTE?

• MPC voted 9-0 on all 3 decisions. Forbes, McCafferty oppose QE, but didn’t vote against it
• Analysts surveyed by Bloomberg expect an 9-0 vote to leave rates unchanged

WHAT DID CARNEY SAY ABOUT FUTURE POLICY DIRECTION?

• Bank says “monetary policy could respond, in either direction, to changes in the economic outlook as they unfolded”
• Says previous guidance on likelihood of another rate cut has “expired”
• Carney said BOE has a neutral bias going forward
• BOE retains many options; could cut Bank Rate further, could do additional asset purchases, if that were appropriate; although adds not signaling it is appropriate
• Deputy governor Minouche Shafik says plan is to continue current QE program fully
  • BOE said weekly QE auctions will be GBP1b for each maturity bucket

WHAT DID CARNEY SAY ABOUT BREXIT?

• Far too soon to make judgments on Brexit; it hasn’t yet begun and there are a quite a range of outcomes
• Says decision by judges that parliament must vote before starting Brexit is an example of the uncertainty that will characterize the process of leaving the EU
  • The judicial process isn’t inconsistent with the triggering of article 50 by the end of March
  • There are going to be a series of events which will feed back into uncertainty
• EU deal biggest determinant of U.K. outlook; British economy’s supply could be affected by EU deal
• Haven’t changed assumption about what kind of Brexit the U.K. will have; have taken a weighted average of various potential outcomes

AND WHAT ABOUT GROWTH?

• BOE sees 4Q GDP growth at 0.4%, raises 2016 forecast to 2.2%
• Raises 2017 est. to 1.4% vs 0.8%, cuts 2018 to 1.5% vs 1.8%
• Near-term momentum is good, deceleration is likely in 2017
• Growth is expected to be weaker in medium term vs August projections

WHAT DOES THE BANK SAY ABOUT STERLING?

• Fall in sterling will have more significant implications for the path of inflation
• Bank doesn’t target the exchange rate, it targets inflation; that doesn’t mean that policy makers are indifferent to the exchange rate
  • BOE cares about why it moves and the the combination of the exchange rate and other factors that are driving the economy and inflation

WHERE DOES THE BANK SEE INFLATION?

• BOE raises inflation forecasts over entire forecast period
  • BOE raises 2017 CPI forecast to 2.7% from 2%, 2018 prediction to 2.7% from 2.4%
• The balance of stronger near-term consumer demand, modest supply outlook and a lower sterling exchange rate implies a more challenging trade-off between returning inflation sustainably to target on the one hand, and supporting real activity on the other

WILL BOE LOOK THROUGH HIGHER INFLATION?

• BOE says it has limited tolerance for above-target CPI
• Carney says there is no one limit on how much inflation rate-setters will tolerate as it’s a product of what is causing the overshoot
• Adds MPC monitoring closely inflation expectations as they have picked up notably
• Carney says at press conference it’s appropriate to allow period of above-target CPI as trying to rectify overshoot could prove “excessively costly” to output and employment
• Mark Carney had previously told a House of Lords Committee in London that there are limits to the MPC’s willingness to look through an overshoot of inflation