Why England Held | MACRO MINUTES

  • Thursday, September 15, 2016

Welcome to The Signal’s weekly “Macro Minutes.” Each week, we analyze the most important communications from a specific region and provide insight based on our quantitative analysis of central banks.


The Bank of England held the Bank Rate at 0.25% in today’s announcement. The bank’s rising sentiment trend* (momentum** 0.25) prompted us to forecast this decision in our weekly Macrocast on Monday.

Today’s statement score of -0.74 (residual -0.79) nudged the BOE less hawkish with momentum now at 0.20.

While the policy statement contained optimism, noting that “the evidence on the initial impact of the [August] policy package is encouraging,” it also made decidedly dovish observations: “inflation remained at 0.6% in August, lower than projected at the time of the August Inflation Report, and well below the 2% inflation target.” Its subsequent language expressing concern about persistent downside risks contributed to the statement’s dovish score.

The minutes from this week’s meeting (residual -0.26) also had a dovish tenor, alluding to continued, underlying weakness in the UK economy as a result of Brexit. The minutes suggest that despite recent improvements in the outlook, the Committee expects their August forecast to remain somewhat accurate, indicating that additional stimulus before year-end is still a possibility.

The bottom line: we expect the BOE will wait until their November forecast round before engaging in further stimulus. However, if BOE sentiment continues its dovish turn this timetable could be accelerated.

The Signal Team

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness.

** Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications.

Disclaimer: the forecasts provided herein are based upon sources believed by Prattle Analytics, LLC D/B/A Prattle, to be reliable and to be developed from models which are generally accepted as methods for producing economic forecasts.

Prattle cannot guarantee the accuracy or completeness of the information upon which this Report and such forecasts are based. This Report does not purport to disclose any risks or benefits of entering into particular transactions and should not be construed as advice with regard to any specific investment or instance. The opinions and judgments expressed within this Report made as of this date are subject to change without notice.

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