United Kingdom: BoE keeps the Bank Rate unchanged in June
June 17, 2015
At its 3 June 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.
Regarding the domestic economy, the Committee commented that GDP grew 0.3% in the first quarter, according to a second estimate. The figure was unrevised from the preliminary estimate. While growth in industrial production was revised up from the advanced estimate, it was offset by a weaker assessment of growth in the services sector. The expenditure breakdown showed that trade was a drag on growth in the first quarter, which mainly reflected that imports were unexpectedly strong rather than exports being weak. Regarding the labor market, the Bank acknowledged that, considering the most recently available data, it is still hard to assess whether the reduction in the unemployment rate is beginning to ease.
Regarding the degree of slack in the economy, the MCP stated that it has narrowed markedly over the course of the past two years and that it currently stands at 0.5% of GDP. Looking ahead, the Bank expects economic growth to be supported mainly by domestic demand, while net exports are expected to be a slight drag on growth.
In May, consumer prices rose 0.1% over the same month of the previous year, thus recovering from April’s 0.1% annual drop. April’s figure had marked the first annual decrease in consumer prices since 1960. Regarding price developments in the medium term, the MPC’s view is that inflation will pick up notably toward the end of the year. The Committee concluded that, “the appropriate horizon for returning inflation to the target would depend on the trade-off between the speed with which inflation returned to target and the consequences of that speed for output and employment.”
Author: Dirina Mançellari, Senior Economist