COVID | Monetary Policy & Inflation | UK
The BoE’s ongoing easing programme means it need not announce any policy change at this meeting. However, with insufficient room to continue purchases into 2021, November 2020 is a ‘live’ meeting, which the Monetary Policy Committee (MPC) is likely to warm up toward.
Renewed lockdown restrictions, Brexit risk, and low vacancies probably disappoint the MPC. Together with the disinflationary effect of GBP appreciation, the 2yr forward trade-off turns conventionally dovish, justifying more QE soon, in my view.
No Change in Policy, for Now
The BoE MPC will announce its latest policy decision at noon on 17 September, and a ‘no change’ outcome is the unanimous modal expectation of contributors to the consensus. That also applies to the vote split, where no dissenters are anticipated. With the current purchase programme comfortably able to extend until after the November Monetary Policy Report, there is no pressing need to change policy yet. However, without enough space to extend the QE programme into 2021, the commentary around the September meeting must be mindful of the potential need to change policy at the November meeting. Although the MPC disappointed dovish expectations in August with an early taper to its asset purchase pace, I do not see that as the start of a relatively hawkish trend. The MPC was optimistic about the economic recovery, but subsequent comments from a few MPC members suggest that they have already cooled on that outlook. As the forecast changes, both through the central scenario and the risks, the optimal policy response does too.
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