Today’s communications suggest that the UK MPC will hike Bank rate to 0.5% on its next decision date of 2 November barring downside data surprises or market turbulence.
According to the minutes, a majority of members judged that, if the economy remains on the expected path, “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”.
The unreliability of previous forward guidance increases the pressure on the Committee to follow through on this signal at the earliest opportunity.
The hawkish shift has been driven by recent data indicating stronger-than-expected activity and inflationary pressures – see previous post.
Key data inputs to the November decision will be September consumer price inflation and the preliminary estimate of third-quarter GDP growth, scheduled for release on 17 and 25 October respectively. The judgement here is that inflation would need to fall back to 2.7% or below and growth to undershoot the Bank of England staff’s 0.3% projection to head off a hike.
Major national accounts revisions due to be released on 29 September may also play into the MPC’s decision. The Office for National Statistics has already indicated that growth of household income and the level of the saving ratio over 2010-15 were higher than previously reported – see previous post. A similar upgrade to 2016-17 data could allay some MPC members’ concerns about the impact of a rate hike on consumer spending.