Bank of England (BOE) September review
2024-09-25
■ At the meeting of the Monetary Policy Committee (MPC) in September, the Bank of England decided to keep the policy interest rate (5.00%) and the reduction rate of treasury bond holdings unchanged.
■ The Bank of England has assessed the steady progress of the economy and prices and expects to continue with a "quarterly" regulatory interest rate cut.
The Bank of England (BOE) announced the Monetary Policy Committee (MPC) meeting results on September 19th. Consistent with market expectations, this meeting has decided to maintain the policy rate of 5.00%, which was already decided upon at the MPC meeting in August. The voting result showed 8 votes in favor of keeping interest rates unchanged and 1 vote in favor of a 25-basis point rate cut (Dhingra member), indicating a more unified internal opinion compared to the "delicate balance" of 5 votes in favor and 4 votes against the decision to cut interest rates at the MPC meeting in August. In addition, the Bank of England has decided to reduce its holdings of treasury bonds by 100 billion pounds through the Asset Purchase Facility (APF) in the next 12 months, of which 87 billion pounds is the due part, and the reduction rate is the same as that of recent times. Therefore, the impact on the UK bond market is considered to be small.
The Bank of England believes that the economic and price situation is progressing as expected, therefore maintaining the policy interest rate unchanged. The statement and meeting minutes released after the meeting showed that the central bank believed that "there was no significant new information expected in the August financial policy report". According to the initial value of the actual GDP growth rate from April to June, it increased by 0.6% month-on-month, achieving positive growth. At present, the Bank of England seems to believe that there is no need to rush to support the economy through interest rate cuts.
Among the price factors that the Bank of England is concerned about, the inflation trend in the service industry may be a key focus. The August Consumer Price Index (CPI) released on September 18th showed that the overall CPI increased by 2.2% year-on-year, tending to stabilize, while service prices increased by 5.6% year-on-year, accelerating their rise. However, unlike the upward inflation risk mentioned at the MPC meeting in August, this meeting did not specifically point out the relevant risks.
As of the time of writing this article, the short-term financial market has estimated a probability of approximately 80% that a further 0.25% interest rate cut will be implemented at the MPC meeting in November. The next interest rate cut is expected to be at the MPC meeting in February next year, with a market expectation probability of about 90%. This means that the "quarterly" regulatory interest rate cuts have become a consensus among the majority of market participants. The Bank of England's interest rate cuts are mainly concentrated in February, May, August, and November when financial policy reports are released, which is also in line with the trend of other major central banks. For example, European Central Bank (ECB) President Lagarde believes that "there is more information to confirm" and expects the ECB's interest rate cuts to be concentrated in March, June, September, and December when its economic team releases its macroeconomic outlook. If there are no significant changes in the UK economic environment, the market will maintain the expectation of the central bank steadily implementing regulatory interest rate cuts. In addition, regarding the issue of fiscal deficit, it is worth noting the scale of tax increases planned in the budget proposal first proposed by the Stamer government at the end of October.
■ The Bank of England has assessed the steady progress of the economy and prices and expects to continue with a "quarterly" regulatory interest rate cut.
The Bank of England (BOE) announced the Monetary Policy Committee (MPC) meeting results on September 19th. Consistent with market expectations, this meeting has decided to maintain the policy rate of 5.00%, which was already decided upon at the MPC meeting in August. The voting result showed 8 votes in favor of keeping interest rates unchanged and 1 vote in favor of a 25-basis point rate cut (Dhingra member), indicating a more unified internal opinion compared to the "delicate balance" of 5 votes in favor and 4 votes against the decision to cut interest rates at the MPC meeting in August. In addition, the Bank of England has decided to reduce its holdings of treasury bonds by 100 billion pounds through the Asset Purchase Facility (APF) in the next 12 months, of which 87 billion pounds is the due part, and the reduction rate is the same as that of recent times. Therefore, the impact on the UK bond market is considered to be small.
The Bank of England believes that the economic and price situation is progressing as expected, therefore maintaining the policy interest rate unchanged. The statement and meeting minutes released after the meeting showed that the central bank believed that "there was no significant new information expected in the August financial policy report". According to the initial value of the actual GDP growth rate from April to June, it increased by 0.6% month-on-month, achieving positive growth. At present, the Bank of England seems to believe that there is no need to rush to support the economy through interest rate cuts.
Among the price factors that the Bank of England is concerned about, the inflation trend in the service industry may be a key focus. The August Consumer Price Index (CPI) released on September 18th showed that the overall CPI increased by 2.2% year-on-year, tending to stabilize, while service prices increased by 5.6% year-on-year, accelerating their rise. However, unlike the upward inflation risk mentioned at the MPC meeting in August, this meeting did not specifically point out the relevant risks.
As of the time of writing this article, the short-term financial market has estimated a probability of approximately 80% that a further 0.25% interest rate cut will be implemented at the MPC meeting in November. The next interest rate cut is expected to be at the MPC meeting in February next year, with a market expectation probability of about 90%. This means that the "quarterly" regulatory interest rate cuts have become a consensus among the majority of market participants. The Bank of England's interest rate cuts are mainly concentrated in February, May, August, and November when financial policy reports are released, which is also in line with the trend of other major central banks. For example, European Central Bank (ECB) President Lagarde believes that "there is more information to confirm" and expects the ECB's interest rate cuts to be concentrated in March, June, September, and December when its economic team releases its macroeconomic outlook. If there are no significant changes in the UK economic environment, the market will maintain the expectation of the central bank steadily implementing regulatory interest rate cuts. In addition, regarding the issue of fiscal deficit, it is worth noting the scale of tax increases planned in the budget proposal first proposed by the Stamer government at the end of October.