Bank of England Policy Outlook: 2 August 2018

After a below-forecast June CPI print, the probability of an August rate hike fell from around 80% to around 69%, according to at least one measure.

At 2.4%, headline inflation is not far from the BoE’s 2% target rate, and core inflation has slipped lower to 1.9%. Nevertheless, this could still be enough to keep a rate hike in play this month, depending on how the data performs in the meantime. How have the latest data affected the Bank’s inflation outlook and interest rate expectations in the longer term?

Key things to watch at this meeting:

  • When will the Bank hike? Market expectations are still reasonably high for an August move, if less certain than prior to the latest inflation data. Bank of England comments and additional data releases will be key over the next two weeks in shaping those expectations further. For now, an August hike is still a contender.
  • MPC vote breakdown: Whether the Bank votes to hike or hold course, what is the vote breakdown? Last meeting, Chief Economist Andy Haldane took markets by surprise when he joined Saunders and McCafferty in calling for a hike. The vote breakdown tells us not just what happened at the latest meeting but what we might expect at the next. McCafferty’s second term expires at the end of August so this marks his final meeting.
  • Guidance nuance: What guidance does the BoE provide on interest rates heading forward? It has previously indicated that interest rates are likely to move only gradually and to a limited extent.



Next BoE meeting dates: 2 Aug, 13 Sep, 1 Nov, 20 Dec

BoE inflation target rate: 2%

Key words:

(definitions taken/adapted from Investopedia)

Hawkish/hawk: Policymaker who favours higher interest rates to curb inflation

Dovish/dove: Policymaker who favours low interest rates to encourage economic growth/inflation

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

Inflation has recently outpaced wage growth, leading to negative real wage growth.