Uncertainty entirely justified by the MPC

24th November 2015 By: Ranko Berich

BoE MPC Testimony – 24/11/15

Today’s Monetary Policy Committee testimony showed quite clearly that the Bank of England is not unconditionally committed to maintaining loose monetary policy. Andy Haldane once again cemented his position as the most dovish MPC member, giving a very robust defence of his willingness to consider further cuts to interest rates.

It’s important to note that dissent in the MPC is not only acceptable, but desirable. The fact that Haldane balances the risks to inflation differently to other MPC members is precisely why a committee votes on rates, as opposed to having one decision maker. If the entire MPC had the same view, there would be no point in the committee. Haldane’s views do have merit and if the data begins to support them more conclusively, the rest of the MPC is bound to take notice.

Carney gave a subtle nod to the effects of tight fiscal policy, suggesting that demand needed to be robust considering the government’s plans for austerity. The talk of abolishing cash and negative interest rates was largely beside the point. It’s the Bank’s job to consider these issues and certainly does not mean Andy Haldane is planning on ditching pound sterling for bitcoin any time soon.

Forbes was very clear about what is keeping the Bank of England in ‘wait and see’ mode. This being the uncertainty around the outlook for productivity growth, which in turn creates uncertainty around unit labour cost growth and therefore inflation. Even though the labour market appears tight by a number of measures, this uncertainty entirely justifies caution from the Monetary Policy Committee.