BoE Post-Mortem: Seeing Through The Shock

Overview

• The Bank of England voted 7-2 to hold Bank Rate at 3.75%, in line with our views, with Greene and Pill dissenting in favour of a 25bp hike.
  For the bulk of the Committee, however, holding Bank Rate was appropriate due to:

1. Receding upside risks stemming from energy markets following the US-Iran Memorandum of Understanding.

2. Further evidence in recent labour market and CPI reports that underlying disinflation was progressing prior to the shock.

3. Tighter financial conditions already working to reduce the impact of the shock on inflation.

• For Greene and Pill, the decision to hike rates was to provide "insurance" against more sensitive inflation expectations.