So when the rate-setting monetary policy committee (MPC) offered a quarterly inflation report (pdf) this week which conceded that inflation is much lower than had been expected a year ago, and is forecast to rise more slowly than previously anticipated, many commentators were not surprised.
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Bank of England cuts interest rates to 5.25%.
In a move that has reassured businesses and households, the Bank of England’s Monetary Policy Committee (MPC) has this week (5 November) voted to maintain the 0.5 per cent interest rate.
Economists are saying that the latest reports indicate that the Bank of England remains relaxed, or dovish, over an interest rate rise.
However, it would heap further misery on savers, whose investments already receive a very low rate of return.
The British central bank’s tone contrasts with that of the U.S. Federal Reserve, whose chair, Janet Yellen, said on Wednesday that a US rate rise was a prospect for December. “Today’s outcome will only serve to push back market expectations for a rate hike – it sounds to us like this might not happen until late next year”, said Alex Edwards, currency analyst at UKForex, in a note.
Such a path for interest rates “would provide more than adequate support to domestic demand to bring inflation to target”, the BOE said.
The pound fell a cent against the euro and dollar after the inflation report, at just over 1.40 and 1.53 respectively.
“Many emerging market economies have slowed markedly and the Committee has downgraded its assessment of their medium-term growth prospects”, the minutes of the meeting showed.
Growth, as measured on a modal basis, is seen at 2.7 percent this year, 2.5 percent in 2016 and 2.7 percent in 2017, only a whisker weaker over the three-year period than the Bank predicted in August and above most economists’ expectations.
Structural limitations in Thailand’s export and manufacturing sectors are deemed as the main internal downside risk, while public expenditure is an upside risk, Mr Jaturong said.
“The timing of the first and subsequent rate rises is therefore critical to market sentiment”.
The main message was that if interest rates went up at the rate markets expected then inflation would be ever so slightly above target in two years’ time: 2.06%, to be precise.
The BoE is watching the labour market closely for signs that inflation pressures are building. Inflation is also expected to stay below 1% until at least mid-2016. The global considerations have encouraged the Bank of England to remain cautious about the outlook for official inflation.
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This week’s economic surveys suggested the United Kingdom economy held up better in October, pointing to growth edging back up to 0.6% in the fourth quarter, or even 0.7% if retailers enjoy a bumper Christmas, according to IHS Global economist Howard Archer.
