United Kingdom consumer-price growth will remain below 1 per cent – less than half the central bank’s target – until the second half of 2016 and there are downside risks to this outlook, it said in London on Thursday.
Advertisement
The Bank’s Monetary Policy Committee, led by governor Mark Carney, voted 8-1 to keep rates unchanged.
Despite speculation that Kristin Forbes or Martin Weale would advocate to raise rates to 0.75%, the minutes revealed her colleague Ian McCafferty was the only MPC to go against the grain.
Its asset purchases, another tool aimed at restoring the flow of credit in the United Kingdom post-credit crisis, will be held at £375 billion until the base interest rate is around 2 percent again, the MPC said in its most forward-looking statement ever on the huge monetary easing program.
The bank’s policymakers believe that it was more likely than not that inflation would remain below 1 percent into the second half of 2016.
Core inflation, which excludes volatile food and energy prices, gained 1.11% year-on-year. Oil prices are 14%. The strengthening pound was another factor Carney pointed to as something that was driving down import costs.
The last couple of United Kingdom economic reports have indicated a slowing in the United Kingdom economy although it is still set to grow in 2015 and 2016.
The latest inflation report from the Bank is also out – it’s the quarterly update in which the BoE offers its view of the domestic and global economy, and the prospects for the years ahead.
The Bank of England said the outlook for global growth had weakened since its last inflation report in August, with a few emerging economies having “slowed markedly”. It is also worth noting at this point that the Bank of England has reduced its short-term inflation forecast although the two-year expectation remains intact.
It suggested that while the United Kingdom economy was doing well enough in isolation to justify moving away from the record-low rate of 0.5% – global instability meant it was not yet the right time.
“While the MPC continues to signal an inclination towards raising rates, their inflation projections show a bigger overshoot in relation to the 2 percent target”, said Michael Sawicki, senior economist at Lloyds Bank Commercial Banking.
Meanwhile, the central bank Governor stated that he still feels a gradual interest rate hike is required in order to attain its target inflation rate.
“Super Thursday has quickly turned into Superfluous Thursday” said Maike Currie of Fidelity global. Currie spoke of the concerns that savers will have in a low-inflation environment which he described as “a backdrop which typically makes for measly returns”.
Advertisement
The Bank of England has trimmed its forecast for British economic growth this year, warning about potential risks from a slowdown in emerging markets. Today’s report may not be the most important but the noises from the Federal Reserve in the past fortnight will most definitely be emboldened by a strong figure.
