Bank Of England Keeps Rates On Hold, MPC Split 8-1
January 14 2016 - 1:50AM
RTTF2
The Bank of England maintained its record low interest rate and
quantitative easing unchanged as expected, on Thursday.
Policymakers observed that downside risks to global growth and
the recent decline in oil prices could depress the near-term
inflation outlook.
The Monetary Policy Committee, governed by Mark Carney, voted
8-1 to keep the interest rate unchanged at 0.50 percent. The rate
has been at the current record low level since early 2009.
The MPC voted unanimously to retain the asset purchase plan at
GBP 375 billion.
Ian McCafferty has been the sole dissenter since August, seeking
a 25 basis points rate hike, suggesting that the majority of
policymakers are in no hurry to tighten monetary policy.
McCafferty viewed that the risks to domestic cost growth
remained to the upside, and, given the recent depreciation of
sterling, were less likely to be offset by the drag from earlier
sterling appreciation.
Other eight members of the committee continued to judge that
leaving the stance of monetary policy unchanged would best balance
the risks around achieving the MPC's objective of returning
inflation sustainably to the target in around two years' time.
Due to falling oil prices, the increase in inflation is expected
to be slightly more gradual in the near term than estimated in the
Inflation Report, the bank said.
Despite the fall in oil prices, inflation should still pick up
quite quickly over the coming months, to around 1 percent by
Spring, Paul Hollingsworth at Capital Economics, said.
While the chances of a later hike are clearly building, the
economist continues to think that the MPC will hike rates this
year, much sooner than the market expects.
IHS Global Insight Economist Howard Archer said the bank is
unlikely to raise its interest rates to 0.75 percent before August.
He sees the bank only lifting interest rates to 1.75 percent by
end-2017 and 2.25 percent by end-2018.
The actual path that interest rate will follow over the next few
years will depend on the economic circumstances, the bank said in
its monetary policy summary.
Policymakers said continued quarterly growth at rates of around
0.5 percent were likely around the turn of the year, a little
weaker than the near-term outlook in the November Inflation
Report.
The National Institute of Economic and Social Research said the
British economy expanded 0.6 percent in the three months to
December.
According to an annual survey from the EEF this week, Britain
was becoming less competitive as a manufacturing hub. Manufacturers
expect 2016 to be a year of tough decisions and more prominent
risks.
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