United Kingdom: BoE keeps the Bank Rate unchanged at 0.50%
February 18, 2015
At its 4–5 February 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. 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 the economy slowed somewhat in the final quarter of 2014. However, recent economic indicators suggest that the moderation in GDP growth might be short-lived. At the outset of the year, the economy has shown positive signs due to the impact of lower oil prices. In addition, consumers are more confident in their financial positions, which has driven up consumer confidence. The Bank expects the unemployment rate to fall further. Nevertheless, the MPC’s view was that, “there was uncertainty around the judgment […] about both the current degree of slack and how quickly it would narrow, but […] it was likely to be absorbed by the middle of the forecast period.”
In January, annual CPI inflation reached a new record low and remained well below the 2.0% target. The Bank judged that inflation will likely remain close to zero for most of this year, reflecting, “past falls in energy, food and other import prices and some continued drag from domestic slack.” In its latest Inflation Report in February, the Committee downgraded its inflation forecast for both this year and the next. It now expects the annual inflation rate to be 0.2% in 2015, which is down from the 1.2% projected at its November’s Inflation Report. For next year, the BoE projects that inflation will pick up and average 1.5%, which is also lower than the 1.7% previously forecast.
Author: Dirina Mançellari, Senior Economist