BoE Faces a Crucial Decision Amid Market Uncertainty
The Bank of England (BoE) is known for its unpredictable moves, earning the nickname "unreliable boyfriend." Today’s rate decision is expected to be closely contested, with UK money markets pricing in a 25% chance of a 25 basis points cut, though the actual outcome may be less clear-cut.
Divided Monetary Policy Committee
The nine-member Monetary Policy Committee (MPC) remains sharply divided. Hawks such as BoE chief economist Pill and Greene emphasize the ongoing inflation threat and resist loosening policy too soon, fearing renewed price pressures from a less restrictive stance.
However, their position has weakened recently as official September CPI inflation peaked below expectations, and preliminary October data show a declining impact from food inflation—an important factor in shaping inflation expectations.
Uncertainty Over Upcoming Fiscal Policy
Adding to the complexity is the uncertainty surrounding Chancellor Reeves’s Budget announcement scheduled for November 26, which supports arguments for holding rates steady for now.
Dovish Concerns on Labour Market
The dovish members of the BoE focus on signs of a rapidly worsening UK labour market, seen both in official statistics and corroborated by informal reports from the business community frequently referenced by Governor Bailey.
"The Bank of England has a reputation of daring to surprise. Its nickname – unreliable boyfriend – is testament to that."
"Hawks including BoE chief economist Pill or Greene assess the still lingering inflation threat as key and don’t want to err on the side of loosening the central bank’s grip too early."
"The doves inside the BoE are more concerned about a rapidly deteriorating UK labour market, witnessed both by the official data and in the less formal business circuit often mentioned by BoE Bailey."
Author's summary: The BoE’s latest rate decision hangs in the balance with inflation easing but labour market concerns rising, highlighting the challenge for Governor Bailey to forge consensus.