MPC Watch

MPC Watch

BoE fast out of the blocks on rates, but won’t go the distance

We now think there’s a high chance that the Monetary Policy Committee (MPC) will raise interest rates from 0.10% to 0.25% at the meeting on Thursday 4th November. It may then raise rates to 0.50% in February, if not in December. But we think investors are wrong to price in interest rates rising to 1.25% by the end of next year.

28 October 2021

MPC Watch

Slowing recovery eases pressure to hike

The Monetary Policy Committee (MPC) signalled in August that it is getting closer to raising interest rates, but the gloomy tone of the recent news on the global and UK economies will have reduced the pressure on the MPC to tighten policy. So a rate rise this month doesn’t seem likely. Admittedly, if the recovery regains some pace, it is easy to see some MPC members voting for a rate hike in early 2022. But if we are right in thinking that the bulk of the shortages will prove temporary and that inflation will fall back almost as sharply next year as it rises in 2021, then we think the MPC won’t vote to raise rates until 2023.

16 September 2021

MPC Watch

Divisions emerge, but early end to BoE’s asset purchases unlikely

While the Bank of England will upgrade its near-term forecasts for inflation in its Monetary Policy Report (MPR) published on 5th August, it will probably still judge that the rise is transitory. And while Monetary Policy Committee (MPC) member Michael Saunders may break ranks to vote in favour of an early end to the Bank’s net asset purchases, we do not think others will join him in signalling that interest rate hikes are drawing closer.

29 July 2021
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MPC Watch

No tightening until 2024, and then by unwinding QE first

Even though the Monetary Policy Committee (MPC) will probably acknowledge in the policy announcement on Thursday 24th June that activity and inflation have been stronger than it expected, we don’t think it will suggest it is any closer to tightening policy. While the markets expect that policy will be tightened in late 2022, we don’t think the MPC will get to that stage until 2024. And when it does, we suspect it will unwind some quantitative easing before raising interest rates in 2025.

MPC Watch

Rate hikes still a long way off, despite stronger economy

Given the better starting point and improving economic outlook, it would be a surprise if the Monetary Policy Committee (MPC) didn’t come out with a stronger set of economic forecasts than it had in February at its next meeting on Thursday 6th May. But we think that it will use the policy statement to push back against the markets’ expectation that interest rates will rise within the next year. Instead, we think it will be 2025 before the MPC decides to raise rates.

29 April 2021

MPC Watch

Rising gilt yields won’t push Bank of England into action

Given the improving economic outlook, we doubt the Monetary Policy Committee (MPC) will respond to higher gilt yields by stepping up the pace of its QE purchases at its next meeting on Thursday 18th March. But we think that it will use the policy statement to reiterate its forward guidance that it will keep interest rates unchanged for many years.

11 March 2021

MPC Watch

Third lockdown unlikely to prompt more QE or negative rates

The prospect of a rapid recovery in GDP in the second half of the year and a rebound in inflation to 2% suggests that the third COVID-19 lockdown won’t prompt the Monetary Policy Committee to launch a fourth increase in quantitative easing at its meeting on Thursday 4th February. And although the MPC will probably confirm that it is moving closer to being able to use negative interest rates, we think it will disappoint the markets by not implementing them either this year or next.

28 January 2021

MPC Watch

No further stimulus, unless there is a no deal Brexit

The next Monetary Policy Committee (MPC) meeting on Thursday 17th December should be less eventful than the last one. Indeed, if our more optimistic economic forecasts are even close to being right, then the MPC may find itself twiddling its thumbs for the next few years! But the risk of a no deal Brexit means the MPC can’t relax just yet.

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