BOE Set to Keep Powder Dry as Oil Prices Swing: Decision Guide

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessBOE Set to Keep Powder Dry as Oil Prices Swing: Decision GuideThe Bank of England is set to leave interest rates on hold as it sticks to a wait-and-see approach to navigate the wild swings in oil and gas prices.Author of the article: You can save this article by registering for free here. Or sign-in if you have an account.1{ywp10d02699)dbg5r{zgqm_media_dl_1.png Office for National Statistics(Bloomberg) — The Bank of England is set to leave interest rates on hold as it sticks to a wait-and-see approach to navigate the wild swings in oil and gas prices.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountInvestors and economists expect the Monetary Policy Committee to keep the benchmark cost of borrowing at 3.75% on Thursday with the inflation outlook still hinging on the outcome of the Middle East conflict. A new set of forecasts will be published alongside the decision at 12 p.m. London time. Governor Andrew Bailey will hold a press conference an hour later.While recent data has pointed to domestic inflation pressures easing, oil and gas prices are higher than when officials last met in June with the US and Iran once again trading strikes after a recent pause in hostilities.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againStill, a majority of economists polled by Bloomberg expect only two of the nine-member MPC to call for an immediate rate rise. A tightening of financial conditions since the war broke out has bought officials time. However, they are likely to keep the option of increasing borrowing costs on the table.The BOE is also expected to publish its latest analysis on quantitative tightening ahead of a decision on unwinding its portfolio of government debt in September.The majority on the MPC are expected to back keeping rates on hold as they balance the threat from inflation against slowing growth and weak demand for workers. For now, they believe the tepid economic backdrop combined with higher real-world borrowing costs is containing the risk that workers seek bigger pay raises and companies bump up prices.Hawkish rate-setters Chief Economist Huw Pill and Megan Greene are expected to continue their call for higher rates to guard against second-round effects that would keep inflation higher for longer. External rate-setter Catherine Mann is seen as the next most likely to support immediate action.While it would be the fifth straight meeting the BOE has left rates unchanged, traders believe a hike will be in play over the autumn. They currently put the odds of a move in September at around 65% and are pricing in almost two quarter-point increases by the end of the year.Policymakers will look to keep their options open in their messaging to markets given the uncertainty hanging over their decisions. The current guidance says the panel “stands ready to act” to ensure inflation will return to its 2% target over time, language it has used since the war started. The committee may look to avoid any dovish signals that would lead to an unwinding of bets on hikes given officials believe this tightening in financial conditions is helping them contain inflation. The individual paragraphs setting out the views of each member will be in focus for any signs that key swing voters including Bailey are beginning to edge in a more hawkish direction. “There is little incentive for the MPC to narrow its options just yet,” said Sanjay Raja, chief UK economist at Deutsche Bank. “Retaining the current guidance allows policymakers to respond to either a weaker economy or stickier inflation without prejudging the next move in Bank Rate.”This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.While UK inflation is currently running well below the forecasts the BOE made in the spring, the threat from the Iran war has ramped up since its last meeting in June. In April, it suspended its main inflation projection given the uncertainty thrown up by the war, instead relying on three different scenarios. The central bank may restore its central inflation forecast but scenarios are likely to play a key part in its communications once again.“We think the majority of policymakers will probably think that one similar to April’s scenario B best describes the most likely path ahead,” said Dan Hanson, chief UK economist at Bloomberg Economics. “Whatever path the BOE chooses, there is a risk that the sharp movements in energy prices over the past week leave its projections looking out-of-date.” The BOE will start to provide the first hints on the future of its quantitative tightening program ahead of a final decision in September.With gilts under pressure from the Middle East conflict and uncertainty over the spending plans of Britain’s new prime minister, traders are seeking guidance on how quickly the BOE plans to reverse the vast bond purchases it made in the decade following the financial crisis.The bank is reducing its balance sheet by both letting maturing bonds run off and actively selling securities. Some £21 billion of disposals are planned for the year through September and market participants expect a similar amount to be sold from October. However, there are calls for the MPC to slow or even stop offloading long-dated debt altogether with the yield on 30-year gilts only marginally below the 28-year high registered in May.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.