BoE Preview—More Time to Assess

Research evidence excerpt

BoE Preview—More Time to Assess

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since the last meeting. second-round effects that policy would further tightening in financial conditions

inflationary pressures. Interest rates faced by

need to lean against. since the last meeting.

households and businesses remain higher than

prior to the conflict, which will act to reduce

inflation over time.

The Committee will continue to monitor closely

the situation in the Middle East and how its impact

Signal that the Committee stands

propagates through the economy. The Committee

Unchanged ready to act if the situation does not -

stands ready to act as necessary to ensure that

improve.

CPI inflation remains on track to meet the 2%

target in the medium term.

Source: Goldman Sachs Global Investment Research, Bank of England

The MPR will likely include a review of the quantitative tightening (QT) process ahead of

the annual decision in September. We expect the MPC to reiterate that Bank Rate

remains the active monetary policy tool, that asset sales will be conducted in a gradual

and predictable way that does not disrupt market functioning, and that QT has had a

modest impact on yields. We continue to think that in September the MPC will opt to

continue with active sales but lower the pace of stock reduction given fewer

redemptions. A £50bn stock reduction (down from £70bn) – keeping sales broadly

similar to this year – seems the most likely choice, though we may learn more about the

MPC’s thinking next week. Sales will probably remain tilted towards short and medium

maturities.

The Path Ahead

Looking ahead, we continue to think that the Bank will probably remain on hold this year

if oil prices fall back in line with our strategists’ forecasts. The restrictive policy stance,