It's Super Thursday - the day the Bank of England unleashes a raft of data, from the latest decision on interest rates (spoiler: they left it at 0.5 per cent) to its quarterly inflation report, in an effort to increase transparency.
The most anticipated section of the release was the the minutes of the latest monetary policy committee (MPC), which showed that for the first time this year, one member of the MPC (namely notorious hawk Ian McCafferty) voted in favour of increasing interest rates.
What do analysts think? Here's a roundup.
1. "More dovish than anticipated" - ING's James Knightley
This is perhaps a slightly more dovish combination that the market was probably anticipating. Nonetheless, it doesn’t lead us to alter our view that the first rate hike is most likely to come in the first quarter of 2016. Two weeks ago Mark Carney had suggested “the decision as to when to start that process of raising interest rates will likely come into sharper relief around the turn of this year”. November seems too early to us given that the annual rate of inflation will still be well below one per cent at that time and it may create presentational difficulties for the BoE in justifying tighter monetary policy to the broader public. We also expect the political noise in Europe to become louder given the December Spanish elections and the likelihood that Greece/EU tensions will be rising after a summer lull. With headline year-on-year inflation likely to rise reasonably swiftly in early 2016 as the sterling/energy effects fade from the annual comparison of prices, we favour February as the start point for the tightening cycle.
2. "A sweet spot for consumers" - World First's Jeremy Cook
A sole dissenting vote for a rate rise was never going to help the pound and sterling has come lower in the aftermath of the Bank of England’s Super Thursday policy announcement extravaganza.Despite wages and growth being revised higher and inflation lower in the short term – a sweet spot for consumers – other influences seem to be holding MPC members back from voting for rate increases just yet. The main one is likely the value of sterling.
3. "Commodities will keep rates down" - Kames Capital's John McNeill
The Bank faces the challenge of navigating between an economy which is growing strongly and inflation which remains persistently below target. The recent fall in global commodity prices, combined with the strength of sterling, are likely to keep inflation well below target for the foreseeable future. Today’s decision and minutes have done little to alter financial market expectations that the first rise in Bank Rate will not occur until 2016.
4. "Never assume" - Louise Cooper
I wonder if [it] is right – to state that the deflationary pressures are stronger near term but assume this is just a temporary effect. The Bank argues that with by the end of this year, the big fall in the oil price will have come out of the comparisons and so inflation will automatically tick up. It also argues that with wage growth picking up, this will also drive CPI higher through increased unit labour costs.And this is what historical analysis would indicate will happen. But the joy of economics is that models that predict the future based on the past, don’t always work (witness of the failures of predicting the UK unemployment fall). Economies change and interactions within them change. I wrote in a recent Times column, this is the first time since China joined the WTO that its economy is slowing and indebted and that could lead to it exporting substantial deflation.
5. "Lenders will prepare for a rate rise" - Legal & General Mortgage Club's Jeremy Duncombe
The fact that MPC members are beginning to sway towards an increase in the base rate will fire the starting gun for lenders to begin preparing for a rate rise. Lenders will price in a rate rise before it happens, particularly with fixed-rate products, as they must take a long-term view to ensure that the return they receive from interest payments will cover their costs in the future. Other factors, such as an expected rise in inflation, will also have an upwards influence on rates due to their long-term impact on value. This means that the window of opportunity for people to make the most of low interest rates and effectively give themselves a pay-rise is narrowing rapidly.
6. "Rates to edge up" - IHS' Howard Archer
It does appear that the recent falling back in oil prices and sterling’s strength has reduced the MPC’s perceived need to tighten monetary policy in the near term. Also significantly, the Bank of England now seems more confident overall that UK productivity is finally improving, which largely counters the recent upward surprises on earnings growth. Oil prices are getting back down towards the six-year lows seen in January, while sterling has traded at a seven-and-a-half year high on its trade-weighted index this week.We believe that the Bank of England will most likely edge up interest rates from 0.50% to 0.75% in February 2016 – and the risks that there could be an earlier move have now waned markedly.
7. "Little sign the MPC is seriously considering a rise" - Lloyds Banking Group's Adam Chester
Early indications suggest the Bank of England’s August Inflation Report is measured, with the fall in commodity prices, the strength of sterling and China singled out as key counterweights to building domestic price pressures. At first glance, there appears little sign that the Committee is yet seriously considering raising interest rates. Money market and bond yields have fallen around 3-6bp, with market expectations of the first rate rise still firmly rooted around next Spring. Focus will now shift to the Governor’s Press Conference for more guidance.
8. "A desire for ammunition" - Hargreaves Lansdown's Ben Brettell
The Bank’s rhetoric had been increasingly hawkish of late (i.e. favouring higher interest rates). There appears to be some desire to simply get the first rise out of the way, if only to give the Bank some ammunition in the event of a future downturn. If rates remain at rock bottom throughout this business cycle, when the economy next slows (as it inevitably will at some stage), the Bank’s options will be limited to more quantitative easing.