Bank of England vote only 6-3 keeping base rate at 0.5%

by Neil Patterson

15:20 PM, 21st June 2018
About 3 months ago

Bank of England vote only 6-3 keeping base rate at 0.5%

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Bank of England vote only 6-3 keeping base rate at 0.5%

The Bank of England’s Monetary Policy Committee (MPC) at its monthly meeting voted by a majority of only 6-3 to maintain Bank Rate at 0.5%.

The Hawks voting for an increase to 0.75% were Andy Haldane, Michael Saunders and the outgoing MPC member Ian McCafferty.

Some market analyst are now anticipating a quarter percent rate increase to 0.75% possibly at the August meeting. However, there will be many twists and unpredictable figures turn between now and then especially considering the politically volatile global market and how external costs and demand affect our own domestic inflation rate.

The latest report on the decision to maintain the current rate indicates:

CPI inflation was 2.4% in May, unchanged from April. Inflation is expected to pick up by slightly more than projected in May in the near term, reflecting higher dollar oil prices and a weaker sterling exchange rate. Most indicators of pay growth have picked up over the past year and the labour market remains tight, suggesting that domestic cost pressures will continue to firm gradually, as expected.

A small margin of excess demand was projected to emerge by early 2020, feeding through into higher rates of pay growth and domestic cost pressures. Nevertheless, CPI inflation continued to fall back gradually as the effects of sterling’s past depreciation faded, reaching the 2% target in two years.

GDP was expected to grow by around 1.75% per year on average over the forecast, conditioned on the gently rising path of Bank Rate implied by market yields at the time. In those projections, growth continued to rotate towards net trade and business investment and away from consumption. While modest by historical standards, the projected pace of GDP growth over the forecast was nevertheless slightly faster than the diminished rate of supply growth, which averaged around 1.5% per year.

The Committee’s best collective judgement remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.

Click here to read the full monetary policy summary and minutes.



Comments

David Price

10:15 AM, 22nd June 2018
About 3 months ago

If it were possible to write an equation on how the economy performs, it would contain many thousands of variables. The experts consider that altering one variable in this equation of unknown complexity will control the economy. As a scientist I have always found this approach somewhat perplexing.

Neil Patterson

10:27 AM, 22nd June 2018
About 3 months ago

Reply to the comment left by David Price at 22/06/2018 - 10:15
Absolutely David, the economy is like the natural world. An ecosystem where there is a natural balance where you can't change one thing without it having an effect somewhere else.

You can say making one change will increase or decrease pressure on one element but it will always have an additional consequence somewhere else and usually in multiple places.

The use of one figure is common because it creates a soundbite for this day and age of limited attention spans in the public at large.

Darren Peters

11:20 AM, 22nd June 2018
About 3 months ago

Many generations of economists were shown a Philips machine
https://beta.sciencemuseum.org.uk/stories/2016/11/3/how-does-the-economy-work

In essence a cause and effect machine which gave the impression that tweaking variables could produce a desired result if you know what and how. I think that idea has become ingrained and given the impression that economics is a science.

Even if there are some predictable cause and effect elements, it doesn't seem to be possible to control economies predictably.

And that's before the layer of govt machinations is taken into account.

John Frith

12:34 PM, 22nd June 2018
About 3 months ago

Reply to the comment left by David Price at 22/06/2018 - 10:15
Just because a system is "chaotic", doesn't mean that one should give up trying to have a positive influence. Just because unpredictable things happen to me, I don't give up planning what to do tomorrow.

Also, from what I've read, the paradoxically named Chaos Theory describes how patterns emerge from chaos - eg the weather is a chaotic system, but England still has seasons. Gasses behaves chaotically, but the petrol in my car engine burns reliably.

H B

14:17 PM, 23rd June 2018
About 3 months ago

Interest rates are one of the few variables that the BOE can directly control and it is a major influence on the demand and supply for credit.
They have also used other schemes to influence the demands and supply of credit, such as funding for lending and is successor TFS


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