United Kingdom: BoE keeps the Bank Rate on hold
January 21, 2015
At its 7–8 January meeting, the Monetary Policy Committee (MPC) of the Bank of England (BoE) decided to keep the Bank Rate unchanged 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 at this meeting, following five consecutive meetings in which the Committee showed divergence among its members. 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 growth in economy activity is proceeding at a steady pace. Short-term indicators suggest that household spending growth remained strong in the last quarter of 2014. However, business investment weakened, especially in the manufacturing sector. According to the Bank, “one factor pushing down on investment in coming months would be the likely reduction in capital spending in the North Sea in response to lower oil prices.”
In December, annual CPI inflation reached a record low level. The Bank commented that the figure largely reflected lower fuel prices and utility price increases in December 2013. The pound’s appreciation between spring 2013 and summer 2014 had also put downward pressure on consumer prices. Headline inflation is expected to reach a trough of around zero in March and to fall below zero during the second quarter.
Author: Dirina Mançellari, Senior Economist