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MPC minutes reveal a wait and see mode

THE Bank of England’s decision to leave monetary policy unchanged in March was somewhat of a foregone conclusion, just one month after the Monetary Policy Committee (MPC) chose to pause its £200bn quantitative easing (QE) programme.

The minutes of the March meeting will be closely watched by the City this week for signs that asset purchases could be restarted or that an interest rate hike is imminent. Ahead of this month’s meeting a number of economists were predicting a split vote but many are now expecting that the decision was a unanimous one as the MPC appears firmly in wait-and-see mode.

Besides the unanimity of the vote or otherwise, two issues will be important for the markets when the minutes are released this week. First, whether the minutes give any insight into the outlook for inflation and second, what they reveal about the committee’s attitude towards a weakening pound.

The MPC has repeatedly said that it believes the current spike in inflation is temporary and can be accommodated given the level of spare capacity in the economy (how far output is below potential).

Any change to this view could prompt the markets to bring forward their expectations of policy tightening.

The pound weakened substantially between the February and March meetings weighed down by political uncertainty.