United Kingdom: BoE continues wait-and-see approach in March
March 16, 2017
At its 13-15 March meeting, the Monetary Policy Committee (MPC) of the Bank of England (BoE) voted by a majority of eight to one to leave the Bank Rate at 0.25%. The Bank also voted unanimously to continue its purchases of investment-grade corporate bonds to the tune of up to GBP 10 billion and to maintain the total stock of UK government bond purchases at GBP 435 billion, financed by the issuance of Central Bank reserves. All three decisions were in line with market expectations.
The Bank’s decision to maintain its loose monetary stance comes despite a rapid rise in inflation over the last few months as a result of the depreciation of sterling. However, inflationary pressures should die down once the effect of the lower exchange rate has completely fed through to prices. In addition, real wage growth has remained sluggish despite record low unemployment, slowing markedly in the three months to January, and is set to remain meagre going forward. The political environment is also one of heightened uncertainty, with the country about to enter uncharted waters after the imminent triggering of Article 50, encouraging the Bank to stay put for now.
The tone of the communique was largely neutral, with the BoE stressing its willingness to tighten or loosen monetary policy going forward in response to changes in the economic landscape, although some reduction in monetary stimulus is projected over the next few years. The Bank expects inflation to rise above its 2.0% target in 2017 and average 2.7%, before gradually returning to target from 2018 onwards as cost-push pressures fade.
Author: Oliver Reynolds, Economist