United Kingdom Monetary Policy February 2016

United Kingdom

United Kingdom: BoE leaves rates unchanged in February

February 2, 2016

At its 2 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, thus matching market expectations. In February, the Committee voted unanimously on the proposal of keeping both the Bank Rate and the stock of asset purchasing unchanged. In the last six meetings, including the one in January, the same member of the nine-member Committee continuously voted in favor of increasing the Bank Rate by 25 basis points. Conversely, the other members saw the current rate as appropriate considering the inflation outlook as well as the existing state of the economy.

In its analysis of domestic conditions, the BoE commented that the British economy likely decelerated last year compared to the previous year due to a slowdown in domestic demand, which in turn was negatively affected by the government’s consolidations efforts and the appreciation of the sterling. A stronger currency weighed on exports last year. However, the economy accelerated slightly in the final quarter of last year on a sequential basis as robust consumer and business demand prevailed over weak external developments. The Bank also commented that spare capacity has decreased and, as a result, domestic cost pressures are expected to pick up.

Regarding price developments, the MPC commented that inflationary pressures are expected to increase slightly in the early months of the year as the base effect of the drop in energy and food prices fades. The Bank added that, “the vast majority of the shortfall reflected the impact of falls in commodity prices and the past appreciation of sterling. The outlook for inflation would therefore depend on the persistence of these external factors, the extent to which, in the United Kingdom, demand grew in excess of supply, and how rapidly pressure of demand on supply would outweigh any other forces currently depressing wages and price inflation.”

FocusEconomics Consensus Forecast panelists expect the Bank Rate to end 2016 at 1.09%. For 2017, the panel sees the Bank Rate ending the year at 1.66%.

Author:, Senior Economist

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United Kingdom Monetary Policy Chart

United Kingdom Monetary Policy February 2016

Note: Asset Purchase Facility (APF) in GBP billion and Bank Rate in %.
Source: Bank of England (BoE).

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