A finely balanced MPC – but bias still towards cuts
The most recent BoE decision underlines that uncertainty. The Monetary Policy Committee (MPC) voted 5–4 to cut Bank Rate by 25bps to 3.75%, with four members – Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill – preferring to hold. Andrew Goodwin, Chief UK Economist at Oxford Economics, highlighted the importance of Governor Andrew Bailey’s role.
“As we expected, Governor Andrew Bailey was again the swing voter, switching to support a cut after voting to hold in November,” Goodwin said. “Bailey appeared to have been swayed by the two lower inflation readings published since the November meeting, as well as further evidence of weakness in activity and the labour market.”
For brokers and lenders, the key takeaway from the minutes is that, while the balance of risk has moved in a more dovish direction, this is not the start of an aggressive easing cycle.
Goodwin points to two main messages:
The balance of risks has tilted dovish. The BoE’s “high inflation” scenario now looks less likely to materialise, he said, whereas the “weak demand” scenario “is still a live risk”. That creates space for further cuts – but not a free hand.
The pace of easing will be measured. In saying that “judgements around further policy easing will become a closer call”, the committee signalled that this is unlikely to turn into a rapid series of cuts.
Part of the reason, Goodwin noted, is that “Bank Rate is getting closer to what MPC members consider to be the neutral interest rate, although the minutes made clear there’s a range of views on what that level is.” As policy approaches neutral, the incentive to move more slowly – and check that inflation is really on a sustainable path back to target – increases.