United Kingdom Monetary Policy

United Kingdom

BoE keeps the Bank Rate unchanged at 0.50%

At its 8–9 April meeting, the Monetary Policy Committee (MPC) of the Bank of England (BoE) decided to maintain the Bank Rate stable at 0.50% and to leave the stock of asset purchasing at GBP 375 billion, as the markets had expected. The MPC made both decisions unanimously. The BoE continues to see the rate as appropriate considering the inflation outlook as well as the current state of the economy.

The Committee commented that there has been little news in terms of domestic activity data since the last monetary policy meeting. The Office for National Statistics (ONS) released revised GDP figures late last month. GDP growth for the last quarter of 2014 was revised to 0.6% (previously estimated: +0.5% quarter-on-quarter). In addition, growth for the full year 2014 was revised up by 0.2 percentage points to 2.8%, reflecting a stronger estimate of services output. The Bank added that while the unemployment rate fell further in February, productivity remained puzzlingly weak. The MPC went on and said that, “although there was considerable uncertainty about the remaining extend of labour market slack, it was unlikely that activity growth could be maintained at its current pace for long, without generating greater inflation in wages and prices, in the absence of some material improvement in labour productivity.”

Regarding price developments, BoE mentioned that CPI inflation was flat in March, mainly reflecting lower energy prices. As a result, inflation is well below the Bank’s target of 2.0%, and it appears more likely than not that inflation will drop below zero at some point in the coming months and remain low for the rest of the year. Looking forward, the Committee added that, “the path of inflation […] would depend on the way in which wages and prices respond to developments in the real economy.”

FocusEconomics Consensus Forecast panelists expect the Bank Rate to end the year at 1.09%. For 2016, the panel expects the Bank Rate to end the year at 1.66%.

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United Kingdom Monetary Policy Chart

United Kingdom Monetary Policy April 2015

Note: Asset Purchase Facility (APF) in GBP billion and Bank Rate in %.
Source: Bank of England (BoE).

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