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United Kingdom Monetary Policy June 2019

United Kingdom: BoE leaves rates unchanged in June

At its meeting ending on 19 June, the Monetary Policy Committee (MPC) of the Bank of England (BoE) voted unanimously to keep the Bank Rate unchanged at 0.75%. The Bank was also in full agreement to maintain the stock of investment-grade corporate bond purchases at GBP 10 billion and to maintain the total stock of UK government bond purchases at GBP 435 billion, financed by the issuance of Central Bank reserves. All decisions were in line with market expectations.

The BoE remains in wait-and-see mode given the lack of clarity over the outcome of Brexit, rising global trade tensions and soft Q2 signals from the eurozone, which could have a knock-on effect on the UK’s external sector. Moreover, weak April data led the Bank to revise down its Q2 GDP growth forecast to zero. On the price front, inflation hit the Bank’s 2% target in May and is expected by the Bank to dip below the target in H2 on weak energy prices. As a result, the BoE was under little pressure to hike rates.

In its communiqué, despite more dovish noises coming from other global central banks, the BoE reiterated its guidance that monetary policy will likely tighten “at a gradual pace and to a limited extent” going forward. However, a rate hike is unlikely until Brexit uncertainty dissipates. The Bank also left the door open to monetary easing in the case of a disorderly withdrawal.

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