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United Kingdom Monetary Policy November 2021

United Kingdom: BoE leaves monetary policy unchanged in November

At its meeting ending on 2 November, the Bank of England (BoE) maintained the bank rate at the record low of 0.10%, where it has been since March 2020. The markets had expected a rate hike. Moreover, the Bank agreed to keep the total target stock of investment-grade corporate bonds and UK government bonds purchases at GBP 895 billion. However, some board members voted to reduce the target stock of bond purchases and raise rates.

The Bank’s decision was driven by the desire to continue supporting the economic recovery, given there is still some uncertainty over the performance of the labor market since the government’s wage subsidy (furlough) scheme ended in September. Moreover, although inflation is currently above the Bank’s 2.0% target, the BoE judged that inflation expectations remain well anchored.

The Bank’s forward guidance was hawkish, with the communiqué stating that assuming incoming data matches expectations, “it will be necessary over coming months to increase the bank rate in order to return CPI inflation sustainably to the 2.0% target.” Some panelists see monetary tightening by the end of this year, while a large majority see higher rates by end-2022.

Kallum Pickering, senior economist at Berenberg, gave his outlook for rates:

“The BoE’s updated guidance that rate hikes would be needed ‘over coming months’ does not pre-commit the BoE to hike rates in December. Governor Andrew Bailey stressed in his opening statement that this decision will depend on economic developments in coming weeks, notably on the labour market as well as inflation and indicators of domestic demand. While our base case remains for a December hike, the decision could go either way with the first hike possibly delayed until February.”

The next monetary policy announcement will be on 16 December.

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