The Bank of England's Monetary Policy Committee (MPC) today unsurprisingly left the official Bank Rate at 0.5 percent and the size of the asset purchase programme at £375 billion.
The BoE said that the MPC '…reached its decisions in the context of the monetary policy forward guidance announced alongside the publication of the August 2013 Inflation Report'.
Commenting on the news Commerzbank C&M said:
"The BoE policy decision is of little intrinsic interest at present, as the BoE has made it clear that rates are on hold for a considerable period and it has no immediate plans to reintroduce QE. However, the background against which the decision is framed is more interesting. Activity growth appears to be relatively healthy and the NIESR estimated that Q3 GDP increased by 0.8% versus Q2, despite the fact that August trade and industrial production data pointed to some weakness. The central bank's Q3 Credit Conditions Survey pointed to continued expansion of credit, with a notable pickup in secured lending. This comes at a time when the government has just unveiled its Help to Buy scheme which essentially allows buyers to access 95% LTV mortgages, and threatens to put upward pressure on house prices in a supply-constrained market.
"Markets remain sceptical of the BoE's claim that it will take three years to drive the unemployment rate down to 7% – the threshold above which the BoE has committed to holding rates at current levels. However, the SONIA market has toned down its assessment of a rate hike over the next 12 months: The probability attached to a 25 bps rate hike by end-2014 is currently running at around 35% against almost 80% four weeks ago. This reflects in part the efforts of MPC members to talk up the forward guidance policy and perhaps also suggests that markets are beginning to adjust to the framework. Nonetheless, if the economy has achieved escape velocity, as implied by recent data, we reckon that the unemployment rate will hit 7% in early-2016.
"As far as the immediate future is concerned, the BoE is expected to remain on the sidelines. Although the economy can be expected to lose momentum relative to recent trends, we look for a self-sustaining recovery with GDP growth in the region of 2% next year. This is not an environment in which additional policy activism is required, implying no more QE as well as no rate moves."