The August MPC minutes confirm that the Committee has shifted to an easing bias, as predicted by the “MPC-ometer” and signalled by last week’s Inflation Report.
A post two weeks ago noted that the MPC-ometer forecast was “consistent with Weale / Dale retracting their tightening votes and one or two members of the middle grouping moving into Posen’s camp. In reality, any shift is likely to be smaller, partly reflecting the difficulty of changing entrenched positions.”
While Posen remained formally isolated, some other members considered voting for more QE but concluded that the “case was not yet strong enough”, partly because market interest rate expectations had fallen, providing indirect stimulus.
The MPC-ometer prediction for September will not be finalised until the start of the month but the current indication is for a further dovish shift, based on information on about half of the inputs and an assumption that the others remain unchanged. The forecast “average interest rate vote” is -11 basis points, close to the -12.5 bp trigger for easing action – see chart. Assuming equivalence between a £50 billion QE expansion and a quarter-point rate cut, this is consistent with three other members voting with Posen next month.
The further move in the model mainly reflects deteriorating financial market conditions, with inflation indicators little changed. The final reading will depend importantly on forthcoming activity data, including the second-quarter GDP revision, August EU Commission consumer survey and August PMIs for manufacturing and services.
