BoE October MPC: Global backdrop warrants greater caution

The BoE kept its policy stance unchanged, and the balance of voting remained at 8 against 1 in favour of the status quo. The minutes of the meeting were fairly balanced, if not somewhat more dovish than anticipated, with MPC members differing in view on whether global developments "signalled that the most likely path for global activity was weaker than assumed previously" or whether it simply "[accentuated] the downside risks" already prevalent.

While recent comments and remarks prior to today's release pointed to the MPC providing a more hawkish stance, today's minutes read somewhat on the dovish side. The committee acknowledged that revisions to data releases had left consumer spending, household income, savings, and business investment weaker than previously thought. They appeared comforted, however, by survey data suggesting strong consumer confidence and the fact that "a range of business investment survey indicators continued to suggest solid investment intentions".

The minutes were particularly interesting in two ways. The first is the lack of discussion regarding market expectations for a rate hike, which have been pushed out to H1 17 from March 2016 just two months ago. While one could have expected a desire from the MPC to re-anchor market expectations, the lack of mention may arise from not wanting to over-engineer such a statement, leading to an overly hawkish market reaction. The second way was that the minutes say "some members of the Committee noted recent evidence that lags in the response of inflation to interest rate changes appeared a bit shorter than previously thought". The implication of this is that the committee could delay hiking and still achieve its overarching strategy without inflation overshooting.

The MPC's focus on global events, as well awareness of decisions by the Fed and the ECB, underscore the view that the committee is now looking more heavily at external events and the reaction of the other major central banks before acting. This is underscored by some members who felt "recent developments in the global economy indicated that prospects were probably somewhat weaker than had been assumed at the time of the August Inflation Report".

As for committee dissenters, Ian McCafferty again voted for a rate hike given his view that domestic inflationary pressures were building, and "domestic cost pressures were likely to come to outweigh the dampening influence of the appreciation of sterling". Nonetheless, "there were some differences of view about the balance of risks to inflation around the target in the medium term".

Overall, today's decision and minutes support the view that a Bank Rate hike is off the table in 2015 and will be pushed out into Q2 2016.