The Bank of England maintained its bias for tightening monetary policy but is closely watching developments in China.
The minutes of the BoE’s meeting were – once again - more interesting than the actual decision. As widely expected, the BoE kept the key policy rate at a record-low 0.5% and the asset purchase target at £375 billion on Thursday.
The tone of the minutes indicated policymakers were slightly more dovish about the inflation outlook than last month. In particular, the central bankers said the downside risks to the UK economy from global developments have risen.
Yet the policymakers maintained their bias for tightening monetary policy because they are waiting to see what happens with China. The central bankers said global developments did not as yet appear sufficient to alter materially the central outlook from August, and that it’s unclear how the situation with concerns about China and other emerging market economies might evolve and what the impact on global activity would be.
There’s nothing in this to surprise manufacturers, and BoE Governor Mark Carney recently reiterated that central bankers are likely to start think about raising interest rates at around the turn of this year.
Yet manufacturers should bear in mind that, if the situation in China deteriorates significantly, the BoE could push back the timing of when it starts raising rates. The next main opportunity for the BoE to do so is November, when the quarterly update of the BoE’s inflation report is out.