UK November MPC: Large uncertainties remain with an increased downward bias

The BoE kept its policy stance unchanged and the balance of voting remained at 8 to 1 in favour of the status quo. The minutes of the meeting highlighted diverging views among Committee members as well as a downside bias, noting risks to the UK from emerging market economies, even when accounting for expected weak EM growth and softer-than-expected activity indicators, as well as concern over unit labour costs rising more slowly than needed for a hike and a weaker inflation profile.

Overall, today's decision and minutes support the view that a Bank Rate hike is off the table in the short term and will be pushed out into at least Q2 2016, acknowledging risks to the downside in light of the above. It is clear that the decision will be data dependent and the Committee wants further reassurances before more members join Mr McCafferty in voting for a hike.

With regard to inflation, the MPC acknowledged that "CPI inflation had fallen to -0.1% in September and was likely to remain around this level until the turn of the year". Further, the Committee felt "the near-term outlook for CPI inflation was weaker than at the time of the August Inflation Report, due in large measure to lower oil prices and recent weaker-than-expected inflation outturns". More importantly, the Committee now believes this was "likely to persist for a little longer" than previously thought, and that "inflation would remain below 1% into the second half of 2016". Moreover, the Committee felt the strong exchange rate would still be a drag on prices "in two years' time".

As for the labour market, there was "a range of views among members of the Committee". The Committee acknowledged that employment growth had "picked up", but that equally average hours worked had fallen. Given levels of wage growth, the Committee felt "the contribution to supply growth from rising labour input was expected to slow" while "greater difficulties in recruitment began to lead firms over time to put more emphasis on productivity improvements". Also the Committee felt it was difficult to anticipate the future direction of wage growth, highlighting low inflation might be linked to wage growth not picking up at an increasing pace, but equally, "the tightening in the labour market could result in greater pressure on pay".