United Kingdom: BoE keeps Bank Rate unchanged
November 20, 2013
At its 6-7 November meeting, the Bank of England (BoE) kept the Bank Rate unchanged at 0.50% and left the stock of asset purchasing at €375 billion. Both decisions, which the Monetary Policy Committee (MPC) made unanimously, were in line with market expectations.
According to the Bank, the economy is showing positive signs of improvement and domestic demand has increased over recent months. While presenting the quarterly Inflation Report on 13 November, the Bank acknowledged that it is considering raising the interest rate prior to Q2 2016. The decision to reconsider raising the interest rate comes on the heels of updated projections for the unemployment rate. The MPC now expects the unemployment rate to reach the 7.0% threshold by the end of 2014, rather than by Q2 2016 as forecast in the August Inflation report. According to the "forward guidance" introduced in August, the Bank will raise interest rates when the unemployment rate slows to 7.0%.
According to the minutes, none of the three, "knockout conditions that would override the forward guidance" - inflation above 2.5% over the next 18 to 24 months; medium term inflation expectations not "sufficiently well" anchored; and financial instability - has been breached. In this respect, according to the November Inflation Report, the Bank expects that inflation will stay below the 2.5% "knockout" threshold over the course of the next four years. The next monetary policy meeting is scheduled for 5-6 December.
All of the FocusEconomics Consensus Forecast panelists expect the BoE to leave interest rates unchanged at 0.50% this year. For next year, the majority of panelists expect the BoE to stay put, resulting in a year-end projection of 0.54%.
Author: Dirina Mançellari, Senior Economist