BoE stands pat, Haldane casts dissenting vote

As expected by economists, Bank Rate was kept at 0.1%, the stock of corporate bond purchases at £20bn and the stock of UK government bonds purchased at £875bn.

The first two propositions were unanimously approved by the Monetary Policy Committee.

Unexpectedly however, the outgoing chief economist at the BoE, Andrew Haldane, voted against the third of those measures, voting instead for a reduction from £875bn to £825bn.

Minutes of Thursday's meeting showed the Monetary Policy Committee appeared to be toeing a somewhat similar line as the US Federal Reserve, wanting to "at least" significantly reduce spare capacity in the economy and to lift inflation to target before contemplating any changes to policy.

Nonetheless, unlike the Fed, the MPC would also need to keep a close eye on political developments, said Paul Craig, portfolio manager at Quilter Investors.

"The Committee did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably," the minutes of the MPC's meeting read.

“The Bank of England remains super cautious with its monetary policy but for how long this can be sustained remains to be seen. It has done a stellar job [...] but consumers and investors must be prepared for the beginning of a tapering programme to reduce the scale of quantitative easing in-line with the vaccination roll-out and the economic reopening.

"But just as one risk begins to subside, others pop up and cause their own kind of headaches. The elections in Scotland and Wales, as well as the ongoing kinks being ironed out in the Brexit treaty, will be closely watched by the BoE."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, wasn't of quite the same opinion, pointing out to clients how Bank's three-year ahead forecast for inflation was the lowest since February 2014.

That, the economist said, provided: "a strong signal to markets that the MPC thinks they have pivoted too quickly to price-in rate hikes.

"Note that all these forecasts are conditioned on markets’ expectations for Bank Rate in a two-week period prior to the Monetary Policy Report."

Bank did announce it would "slow somewhat" its purchases of Gilts under the emergency £150bn programme that began in January, but said it "should not be interpreted as a change" in policy stance.

Since its inception, that programme had been scheduled to end at year end.

Economists at Bank did bump up their UK GDP growth forecast for 2021, from 5.0% to 7.25%.

Although that for 2022 was lowered from 7.25% to 5.75%, it still left the projected level of GDP at the end of 2023 one percentage point higher than was foreseen in February's forecasts.

For inflation, Bank forecast that CPI would peak at 2.47% in the last quarter of 2021, before receding to 1.96% by the second quarter of 2023 and 1.91% in the second quarter of 2024, Tombs pointed out.

The pound spiked a bit lower immediately following news of the split decision, hitting an intraday low of 1.3858, but by 1205 BST had regained its poise and was trading at 1.3905.

Yields on benchmark 10-year Gilts spiked by three basis points in tandem but were last also trading flat, at 0.821%.