BoE revises growth estimates higher

London (Jun 24)  The Bank of England meeting was as expected but there were a few interesting points on GDP and inflation to take note of.

Vote unchanged for QE (8-1) Haldane dissents again

Kept rates unchanged as expected

BoE Holds Gilt Purchase Target At £875 bln, Corporate Bond Target At £20 bln

The BoE says there is now estimated to be aggregate spare capacity in the economy. They also say downside risks have reduced. On inflation, the central bank says that inflation expectations indicate that in the near term increase in inflation is to be transitory. Inflation may exceed 3% for a temporary period of time and price pressures could be larger than expected. 

Bank says staff has revised up expectations for UK GDP since the May MPR by 1.5%. The BoE maintains guidance around future policy tightening. The Q2 guidance has been moved to 5.5% from 4.25%.

The BoE said if the present asset acquisition program is reduced from £150 bln to £100 bln it will be finished in August rather than at the end of 2021. 

Lloyd's Bank noted before the meeting "In the run-up, there has been some focus on May CPI data, which were above BoE expectations and saw inflation move slightly above the 2% target. April GDP data also pointed to stronger Q2 growth than the BoE predicted. That has caused some forecasters to bring forward their expected date for a first rise in Bank Rate.". 

Last meeting the most hawkish member was chief economist Andy Haldane, who was in favor of fewer bond purchases.

It was an interesting week prior as the U.S. Federal Reserve (Fed) become more hawkish. The BoE has had a hawkish stance reducing their pandemic reaction purchases for a while now. The market is now looking to work out when a full taper will take place and at what pace this could happen. Then the next thing on the horizon is when the first rate rise will take place. 

Lastly, the BoE said "The MPC will continue to monitor the situation closely and will take whatever action is necessary to achieve its remit. The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.".

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