8 Doves to 1 Hawk – Bank Rate remains at 0.5%

by Neil Patterson

10:55 AM, 11th December 2015
About 3 years ago

8 Doves to 1 Hawk – Bank Rate remains at 0.5%

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8 Doves to 1 Hawk – Bank Rate remains at 0.5%

Yesterday the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to maintain Bank Rate at 0.5%.doves

The MPC also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves (otherwise known as Quantitative easing) at £375 billion.

Consumer Price Index (CPI) inflation stayed at -0.1% for October, which is over 2% below the medium term (2-3year) target for inflation.

The Bank of England is expecting November inflation figures to move into the positive and future months should increase further as some of the large falls in energy and food prices at the turn of last year drop out of the annual comparison.

However, core inflation remains low with CPI expected to stay below 1% until at least the second half of next year.

Regardless of any potential rate rises in the US there appears to be little current inflationary pressure that may necessitate a rate rise in the UK for quite some time as we are well below the target figure of 2% and our major trading partners in Europe are still suffering from economic stagnation.

In the Monetary Policy summary report is said, “The projected return of CPI inflation to the target depends on an increase in domestic cost growth sufficient to balance the drag on prices from very subdued global inflation and past increases in the value of sterling. Despite lower unemployment, nominal pay growth appears to have flattened off recently. This could reflect short-term volatility in the data. But earnings per worker could be affected by changes in the mix of employment, including a fall in average hours, in which case the impact on unit labour costs would be limited. It could also be that lower headline readings of inflation have acted to limit recent nominal pay growth, despite the tightening labour market. The balance between pay and productivity growth remains a key aspect of the MPC’s policy assessment.

All members agree that, given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles. This guidance is an expectation, not a promise. The actual path Bank Rate will follow over the next few years will depend on the economic circumstance.”



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