BOE Review


  • The Bank Of England’s October meeting passed without as rates remained unchanged and voting maintained an 8-1 split.
  • The message within the accompanying statement however, was decidedly more Dovish than the September meeting. 
  • Inflation is expected to remain low until spring 2016.Sterling strength having adverse effect.
  • Global growth demand below average.External disinflationary pressures persist

Main Points From The Statement

The BOE made a notable departure from their standard view that inflation will pick up into the year end, instead stating that they see the likelihood of inflation remaining below 1% until spring 2016 as “increases in labour costs remain lower than would be consistent with meeting the inflation target in the medium term”.

Sterling strength was also referenced as having a “continuing dampening influence” on core inflation which is currently subdued by “restrained labour cost growth” and “muted import cost growth”.  The BOE also referenced global growth which has “continued at below average rates” and the threat of “persisting external disinflationary pressures”.

Regarding the domestic economy, the BOE noted that “recent official estimates and survey data are consistent with a gentle deceleration in UK output growth since its peak at the beginning of 2014” but that some “slowdown in the pace of the expansion and employment growth” was expected as a the economy approaches equilibrium.

Further reference was made to the external environment whereby the Bank stated that “a deterioration in the global demand environment would slow the pace of expansion further” if the slowdown in certain parts of the world, including China, “were to intensify”.

The statement concluded with the summary that all members agreed that when the Bank Rate does increase it will be more gradual and at a lower level than previous tightening cycles due to “the likely persistence of the headwinds restraining economic growth following the financial crisis” although the “path that the Bank Rate will actually follow over the next few years will depend on economic circumstances”.

Market Reaction

Initial market reactions saw GBP weakening with GBPUSD retracing from pre-BOE highs by over 100 pips. However, after initial weakness, Sterling was bid with demand taking GBPUSD back up to new session highs as investors seemed undeterred by the more Dovish tone to the October statement.

Later on yesterday in comments made during an IMF debate, BOE governor Mark Carney reiterated comments from earlier in the year that the issues of a rate hike will “come into sharper relief around the turn of the year” and that a UK rate rise is not Fed dependent, signalling that the BOE would raise before the Fed does if it is “consistent with UK conditions”.  These comments saw Sterling better bid late in the session and over the European session thus far today.