The Minutes of the latest Bank of England monetary policy meeting, held on the 6th and 7th of April showed the same voting pattern than in the previous months, which was in line with expectations. While we had expected that the March CPI data, which showed a significant easing in inflationary pressures from 4.4% Y/Y to 4.0% Y/Y, were not yet available at the previous meeting, the Minutes showed that an advance reading had been provided to the Governor. Nevertheless, these data didn’t change the BoE’s assessment.
On the contrary, the minutes showed the MPC believes that the near-term path of inflation would be higher than thought at the time of the February Inflation Report. Moreover the MPC added that it was possible there were further effects from the past depreciation of sterling still to come. Besides that, another concern was that businesses were finding it easier than might have been expected to pass on cost increases, while also the degree of spare capacity in the economy was less than then Committee had assumed. Overall however, the Committee judged that the balance between the upside and downside risks to the outlook for inflation in the medium term had not changed sufficiently over the month to alter their views of the appropriate stance of monetary policy. For three members, the upside risks to the outlook for inflation and the possibility that inflation expectations would increase, continued to outweigh the downside risk that the strength of the recovery would be insufficient to eat into the economy’s persistent margin of spare capacity. Andrew Sentence preferred to raise the Bank Rate by 50 bps, while Spencer Dale and Martin Weale favoured to increase the Bank Rate by 25 bps. The other members concluded that an increase in rates was not yet appropriate as they continued to prefer waiting to see how the various factors evolved before adjusting the stance of monetary policy. In addition, the MPC said that the news over the month about demand and activity has probably been to the downside. Adam Posen voted to increase the size of asset purchases by L50 billion.
The Minutes don’t alter our view that next meeting will be key as both the first release of Q1 GDP and the quarterly Inflation Report will be available, which will provide the MPC members with some food for thought.