The Bank of England Monetary Policy Committee (MPC) today voted unanimously 9-0 to maintain the Bank Rate at 0.5% and to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.
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All nine members of the MPC voted to keep rates as they were.
He continued, ‘The bigger picture is that growth remains lacklustre, but reasonably resilient. Forward contracts are below 0.5 percent until the second quarter of next year.
The central bank’s forecasts suggest that officials are unlikely to raise short-term borrowing costs in the U.K.at least until later this year and possibly not until 2017.
But its quarterly inflation report signalled a rate rise may now not come until the final quarter of 2017, with inflation set to remain low “for much of this year” and the worldwide economy weakening. “That is somewhat surprising given our downward revision of global economic growth (to 3.2 percent for 2016, down from a 3.4 percent forecast in November), clear concerns and gloom and pessimism stalking emerging markets, all this must have an impact on a small, open economy like the United Kingdom – and that is certainly the case”.
“We still think that a rate rise this year is likely, and now expect the MPC to hike the bank rate in November 2016”.
Mark Carney’s latest comments mark a saturnine change of tone for the Bank of England governor, who previously had been stoutly bullish on the United Kingdom economy and expected to be putting rates up at the start of this year.
Financial markets are fully pricing in a first BoE rate hike only for mid-2018, and assign a roughly 30 percent chance of an interest rate cut by January next year, according to RBS rates strategist Simon Peck. Price growth is forecast to gradually pickup after that, reaching 2.1 percent in the first quarter of 2018 and 2.2 percent a year later.
However, Kirby said it was not expected that “consumers would go out and spend that significant increase in purchasing power that is coming about from the impact of lower oil prices”.
The MPC also appeared to quash talk of a rate cut in the near term, repeating a message that keeping inflation at target would require tighter policy over the next three years.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “An interest rate rise is like the pot of gold at the end of the rainbow, the nearer you get to it, the further away it moves”. The mechanical return to higher rates of inflation as past falls in energy prices drop from the annual comparison, supported by the recent fall in the sterling exchange rate and some additional stimulus from lower market interest rates, should in time reverse this effect and support wage gains.
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“The committee judged that monetary policy remained accommodative, and the policy space should be preserved, while being mindful of risks to financial stability”.
