Bloomberg - - The Bank of England said the case to tighten U.K. monetary policy is building as Deputy Governor Michael Saunders joined Dave Ramsden in his bid to end bond purchases as soon as possible.
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While the Monetary Policy Committee kept BOE's ultra-loose monetary policy settings in place as predicted by economists, officials changed tone on the outlook. Financial markets consolidated the bets on an interest rate increase to March, while the pound gained.
Noting the moderate tightening of policy foreseen over their horizon in August, some developments appear to have strengthened this case in the intervening period although considerable uncertainties remain, officials said in a statement.
The U.K. central bank is working to neutralise inflation that accelerated well beyond its forecasts over the summer, reaching 3.2% last month. Its new focus is enabled by stronger than expected jobs data that show unemployment will peak well below worst-case scenarios predicted at the onset of the pandemic.
The outlook puts the BOE in the more hawkish camp of advanced-world central banks during a pivotal week for global monetary policy, following the U.S. Federal Reserve's announcement on Wednesday that officials there could soon taper bond buying and Norway s decision to raise its interest rate as part of a whole cycle of planned increases.
The BOE's own benchmark stood unchanged at a record low 0.1%, while its stock of currency purchases is expected to total 895 billion pounds $1.2 trillion by the end of this year. Politic makers led by Governor Andrew Bailey unanimously agreed that any future tightening should start with an interest-rate increase.
Michael Saunders joined Ramsden in pushing for the decision to end bond buying early, a surprise switch that will add to the perception of the BOE shifting its perspective.
There was increasing evidence from a range of inflationary and temporal cost and price indicators that inflationary pressures were likely to persist, the minutes said. These members decided that, despite the existing policy position, inflation was likely to remain above the 2% target in the medium term. The decision was also notable for the participation of the two newest members in the MPC: Huw Pill, former Analyst with Goldman Sachs Group Inc. that replaced Gertjan Vlieghe as Chief Economic Officer, and Catherine Mann, a one-time chief economist of the OECD who replaced Andy Haldane. On this occasion both of them voted the majority.
While the BOE s more hawkish rhetoric follows a noticeable spike in inflation, it also comes against the backdrop of an economic recovery that has shown signs of losing steam amid supply bottlenecks and labor shortages.
Data released on Thursday showed that the U.K. had about 5.8% of its workforce on furlough at the start of this month, even though that support program is scheduled to expire Sept 30. The September month is also shaping up to be the weakest months in private sector activity since the height of the winter lockdown, IHS Markit said on Thursday.
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