The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy in order to meet the 2% inflation target and in a way that helps to sustain growth and employment.
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In the minutes of its December meeting, the Monetary Policy Committee weighed “robust growth” in spending against weak overseas demand and expressed concern over the feeble impetus for prices. Recent data provide a mixed outlook for the United Kingdom economy, with services output increasing last month, while house prices fell and manufacturing production declined more than analysts forecast in October.
MPC members voted eight to one to keep rates steady, the minutes showed, which was also as expected.
The rate setters noted “existing uncertainties mostly referring to the global environment, primarily the uncertain reaction of market participants to an expected increase of interest rate by the Fed and its impact on commodities and financial markets”, the bank said in the statement. We suspect that the BoE will want to see clear evidence that the headline and core inflation has bounced off the lows before they consider removing accommodation.
The Bank of England is widely expected to leave interest rates and asset purchases unchanged following its meeting today, as the global economic slowdown, lack of inflation and strong pound continue to overshadow the ongoing improvement in the domestic economy.
But a top BoE official later warned investors against reading too much into the Bank’s projections when it came to assessing the outlook for rates. Since then oil has fallen further, with Brent crude dropping below $40 a barrel this week.
“Expectations at the start of this year were calling for higher wages, inflation and interest rates”, said Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank.
A measure that is trade weighed of the pound jumped almost 6% in the past year. In this process it will closely monitor external risk factors such as any changes in the US Federal Reserve’s monetary policy or in economic conditions in emerging market countries including China, the movements of capital flows, and the trend of increase in household debt. Fed Bank of St. Louis President James Bullard said he expects inflation to start rising toward the central bank’s 2% goal as the energy shock fades. The rate on the three-month Treasury bill reached its highest level since February 2009, while the six-month bill rate was the highest since November 2008.
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On McCafferty’s reasons for again voting for a small interest rate rise, the minutes cited a view that “the risks around domestic cost growth were to the upside”.
