BoE Sticks With Innovative ‘Confused Hold’ Strategy

As expected, the Bank of England kept rates on hold Thursday for a second consecutive meeting.

It was a predictably convoluted affair. We talk often of “hawkish holds” and “dovish hikes.” At its last meeting, the BoE introduced an innovative new term into the policy lexicon: The “confused hold.” The generous among you might euphemistically call it “patience” or “prudence,” but… well, confusion by any other name.

The vote split at the November meeting was 6-3, again betraying little in the way of consensus on the MPC, which is disconcerting given the high stakes.

To be sure, split votes aren’t uncommon, but it very often feels as though BoE officials harbor starkly divergent views on the proper course for policy.

At least November’s split marked an improvement from September’s SCOTUS-like 5-4. All three dissents wanted another hike.

The new projections found the growth outlook marked down from the August forecasts. Growth stagnated last quarter and will manage a meager 0.1% expansion in Q4. Given that, the labor market is seen softening “to a greater extent” than the bank projected three months ago.

The downbeat growth assessment underscored the case for policy restraint. The BoE, you’re reminded, hiked 14 consecutive times before finally stopping in September.

The inflation outlook was marked up. At this point, I’m out of jokes. The figure below, updated with the new projections, speaks for itself.

Inflation will return to target in Q2 2025, or thereabouts. For reference, the August 2021 projections suggested inflation would be back to 2% in Q2 of 2023. So, two quarters ago. (“Juuuust a bit outside.”)

As a reminder, the last inflation data out of the UK was inconclusive. Headline CPI was unchanged at 6.7% in September, and while core slipped to 6.1% (the slowest annual pace since January), services inflation ticked up to 6.9%, an unfortunate development that offset some of the dovish read-through from marginally cooler wage data.

Inflation risks remain “skewed to the upside,” Thursday’s BoE statement said. “Second-round effects in domestic prices and wages are expected to take longer to unwind than they did to emerge [and] there are also upside risks to inflation from energy prices given events in the Middle East,” the bank went on.

The forward guidance was vague, but appeared to suggest the BoE isn’t inclined to hike again if they can help it, and notwithstanding the three dissents. They also pushed back on the idea that rate cuts are any semblance of imminent.

“Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to 2%,” the bank said. “Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.”