BoE: Language looks increasingly cautious – ING

James Smith, developed markets economist at ING, points out that the Bank of England has unanimously voted to keep rates on hold but as has been the case for the past couple of meetings, there is an increasing air of caution creeping into the narrative.

Key Quotes

“The thing that really stands out to us in this latest statement is that the Bank appears to be getting more wary about the outlook for wage growth. Don’t forget that this has been a key pillar of the Bank’s hawkish rationale over the past couple of years, and came amid increased skills shortages in the jobs market.”

“But while policymakers continue to emphasise that pay growth has strengthened, it notes that the labour market “does not appear to be tightening further”. Importantly, policymakers note that “political events” could lead to another prolonged period of “entrenched” uncertainty – and this, in turn, could hurt prospects for inflation.”

“At the very least, this just signals that Brexit will likely continue to dash any thoughts of policy tightening over coming months.”

“In short, while the Bank still notes that rates may need to rise if Brexit goes smoothly, the risks surrounding Brexit, as well as global growth, mean this tightening is increasingly unlikely to materialise.”

“Having said that, the fact that the BoE is maintaining a tightening bias at all, does hint that policymakers are – and will likely remain - reluctant to follow the Federal Reserve and European Central Bank in the direction of policy easing in the near future.”