Analysts at the Australia and New Zealand Banking Group, (ANZ) explained that the BoE unanimously voted to hike the Bank Rate 25bps to 0.75%.
Key Quotes:
“Governor Carney said, “today, employment is at a record high, there is very limited spare capacity, real wages are picking up and external price pressures are declining.” While the MPC’s economic forecasts were little changed from May, the inflation outlook for 2019 and 2020 has increased a touch, consistent with a weaker sterling.”
“Regarding the outlook, BoE minutes note “Although modest by historical standards, the projected pace of GDP growth over the forecast is slightly faster than the diminished rate of supply growth, which averages around 1 ½% per year. The MPC continues to judge that the UK economy currently has a very limited degree of slack.”
“Unemployment is low and is projected to fall a little further. In the MPC’s central projection, therefore, a small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years.””
“While further moves in the policy rate will likely be very gradual against a backdrop of Brexit, Carney noted “we can’t be handicapped or tied by the range of Brexit possibilities”. The MPC estimate the long-run neutral rate is in the range of 2-3%, so with normalisation expected to remain gradual, monetary policy is set to remain accommodative for some time yet. Markets are not fully pricing in another hike until mid- to late-2019.”
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