Goldman Sachs on BoE Rate Decision - FJElite

Given limited signs of second-round effects and the latest commentary from Bailey, the MPC looks set to hold Bank Rate at 3.75% at the September meeting. We expect another 6-3 vote split. Pill, Greene, and Mann are all likely to continue to support a 25bp hike given the further increase in energy price pressures. Our baseline is that the remaining Committee members continue to favour a hold, but there is some risk that Lombardelli could join the dissenters. While she said that her decision to support a hold in July was not a close call, her paragraph also signalled that she could respond to risks of second-round effects stemming from persistently higher energy prices.

We expect the communications to acknowledge an intensification of upside risks to the inflation outlook since the last meeting given increased energy price pressures. At the same time, we think that the Committee will continue to note that there are few signs of second-round effects so far. The minutes are likely to acknowledge that the real economy has been more resilient than anticipated at the time of the July MPC meeting but also indicate that the labour market remains soft.

We expect the policy language to reiterate that the Committee stands ready to act as necessary to return inflation to target. But relative to this baseline the risks are clearly tilted in a hawkish direction. For example, there is some chance that the Committee could explicitly signal that it will likely tighten policy if energy price pressures do not moderate.