August is decision time for the MPC. July’s decision not to expand the Bank’s QE programme came as a bit of a surprise to the markets. Economic indicators have been moving in a more positive direction in the past couple of weeks, but the data is some way from suggesting that the UK economy is now in the fast lane on the road to recovery. So where is the MPC likely to go from here?
Reuters provides a good summary of some of the likely options for the MPC:
“HOLDS RATES, HALTS QE PURCHASES
Probability: Joint front-runner
This is the central scenario for many in the market as it enables the BoE to assess the impact of its asset purchases so far, with the option of reviving the programme at a later date if needed.
HOLDS RATES, RAISES QE TARGET
Probability: Joint front-runner
If BoE policymakers were concerned that an abrupt halt to its gilt purchases might cause an unwanted spike in bond yields, they could raise the QE target to 150 billion pounds -- the limit authorised by the government. Or they could ask the government to authorise a higher limit for QE purchases, giving them more firepower to use if the recovery derails.
HOLDS RATES, ISSUES NO STATEMENT ON QE
Probability: Low
The BoE might decide to make no mention of QE in the statement that normally accompanies its rate decision, keeping investors guessing until its quarterly Inflation Report on August 12 when it can set out its strategy in greater detail.
BOE RAISES RATES, STOPS QE
Probability: Almost nil
BoE officials have said publicly in recent weeks that it is too early to consider the timing of tighter monetary policy, making higher interest rates this month a near impossibility.”