london skyline

United Kingdom Monetary Policy June 2018

United Kingdom: BoE stays put in June, although consensus within the Committee is slowly shifting towards a rate hike

At its meeting ending on 20 June, the Monetary Policy Committee (MPC) of the Bank of England (BoE) voted to leave the Bank Rate unchanged at 0.50%. However, three of the nine members present—including the Bank’s Chief Economist—voted for a rate hike. At the May meeting, the BoE had voted to stay put by a 7-2 majority. The Bank voted unanimously in June to continue its purchases of investment-grade corporate bonds of up to 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. However, the Bank announced that it would consider scaling back asset purchases once the Bank Rate reaches 1.50%, compared to previous guidance of 2.00%. This is unlikely to happen soon; our panelists currently see rates reaching 1.50% in 2021.

The Bank’s decision to stay put was driven by a desire to ascertain the strength of the economy before embarking on any further rate hikes, as growth in Q1 slowed to a mere 0.1% quarter-on-quarter. Growth appears to have picked up somewhat in Q2—as acknowledged by the BoE—with indicators for household spending and sentiment showing signs of a recovery. On the price side of the equation, inflation has fallen faster than expected in recent months and is now not markedly above the 2.0% target. This has reduced pressure to tighten monetary policy.

In its communiqué, the BoE again made clear that monetary policy will tighten going forward, albeit gradually and to a limited extent. Despite the fading impact of the weaker currency, domestic price pressures will likely build on faster wage growth and emerging capacity constraints, with the Bank still expecting demand in the economy to exceed supply by early 2020. With the Bank’s Chief Economist now advocating higher interest rates, and the Bank judging that economic activity has recovered in Q2, the likelihood of an August rate hike has now increased slightly.

UK Interest Rate Forecast

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest