Yesterday the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to maintain Bank Rate at 0.5%.
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The 12-month Consumer Price Index (CPI) inflation rate stood at minus 0.1 percent last month, unchanged from September.
In the domestic financial markets, influenced mostly by expectations of a policy rate hike by the US Federal Reserve, stock prices have fallen, long-term market interest rates have risen, and the Korean won has depreciated against both the US dollar and the Japanese yen.
In minutes of its latest policy meeting which ended on Wednesday, the BoE expected the softer public spending cuts announced last month by finance minister George Osborne would give a boost to growth next year.
Exports, however, fell 4.7 percent in November from a year ago, with production in the mining and manufacturing industries reducing 1.4 percent in October from the previous month.
Scott Bowman, a United Kingdom economist at Capital Economics, said the market has gone too far in pushing back the first rate hike to early 2017.
The private consumption, however, posted a recovery thanks to the record-low interest rate and the government’s measures to stimulate the economy.
The inter-bank market is quoting sterling-dollar at 1.5157 while your bank will be offering an exchange rate in the region of 1.47-1.48.
The central banks in emerging economies will continue to watch the cross border flows on account of the actions of the central banks of advanced economies and factor them in their decision making.
They also highlighted a leveling off in wage growth in Britain, something which is central to the Bank’s deliberations on when interest rates need to rise. That said, if a member of the MPC were to join McCafferty in voting for a rate hike, the two notable candidates would be Weale or Forbes with Weale having a more hawkish stance historically and Forbes also suggesting in recent months that she has hawkish tendencies.
The MPC said prospects for global and domestic activity hadn’t changed that much since the November meeting and noted that “the more material news on the month had been in costs”.
Janet Yellen, who chairs the Fed, told a Congressional hearing last week, “When we put it all together we’re still seeing an overall picture of slightly above trend growth, ongoing improvements in the labour market”.
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He is forecasting a rise in the second quarter of 2016. It cut interest rates by a cumulative 350 basis points through October to stoke inflation that has remained below its target range since February 2014.
