The Bank of England (BoE) kept Bank Rate unchanged at 3.75% as expected. The decision was taken with a 6-3 vote (against 7-2 in June), with Mann joining the hawkish camp. Not a big surprise given some of her recent remarks. The BoE presented three scenarios in their monetary policy report. The central projection with energy prices conditioned on futures curves and moderate, persistent second round effects now sees CPI inflation at 2.6% one year ahead, which is lower than all three scenarios presented in April.
The lack of evidence of second-round effects on inflation was also highlighted at the press conference. GDP growth is stronger and the unemployment rate is lower, leading the BoE to conclude that the UK economy is in a better position than anticipated in April. The central projection also incorporates two hikes in line with market pricing.
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