The June MPC statement left key policy rates and QE unchanged as fully anticipated.
Markets expected a largely place-holder meeting after the updated BoE projections in May’s Quarterly Monetary Policy Report when soon to depart BoE Chief Economist Haldane’s voted against keeping the Asset Purchasing Programme (APP) target of GBP875bn (Haldane voted to reduce it to GBP825bn).
However, potential for a tilt towards Haldane's hawkish stance had been building given the recent string of strong data and surveys as UK has relaxed the majority of its Covid related restrictions. There had even been discussions in market as to whether there might be any additional hawkish dissents on APP.
Although the MPC did discuss the improved UK and global data and prospects, the MPC Minutes continued to focus on the slack in the economy, citing that 1Q 2021 GDP showed that UK activity is still -8.5% below that of Q4 2019, and noted concerns over the potential impacts from the end of the Coronavirus Job Retention Scheme (furlough).
The MPC referred to the current lift in inflation, but also that surveys of UK forward expectations had fallen and that current CPI inflation would be transitory. They also acknowledged that downside risks to the economy had diminished, but still had force and stated that policy should “lean strongly against downside risks” and avoid undermining the recovery “by a premature tightening in monetary conditions”.
The profile of the Minutes was definitely more dovish than markets had expected and there were no indications of any other MPC members drifting towards Haldane’s more hawkish stance.
Market reactions
GBP/USD had outperformed FX majors into the MPC statement, trading at 1.3980 but unwound gains and slid towards 1.3900 and remained at the lower end of its range through the UK afternoon.
Yields pulled down across the curve.
Gilts outperformed other bonds with 10yr yields declining -4bps to 74bps. Short Sterling futures also reflected the shift in market mood with Sept 2023 rising from 99.28 into the PC meeting to close at 99.345.
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