Bank of England

January 14, 2016

Ian McCafferty remains the odd man out on Britain’s Monetary Policy Committee.  Only he preferred to raise the Bank Rate from the 0.5% level that it has been at since March 2009.  U.K. growth has been decent but total inflation remains far below the 2% target, and core is also subdued.  A released statement observes this about inflation:  “Although indicators of private domestic spending appear healthy, business surveys imply that the near-term outlook for aggregate activity is slightly weaker than in the MPC’s November central projection.  Productivity growth appears to have recovered somewhat over 2015, but the underlying supply capacity of the economy, and therefore the degree of inflationary pressure resulting from a given pace of demand growth, remain difficult to judge.  Despite continued reductions in the rate of unemployment, pay growth remains restrained and appears to have dipped slightly in the most recent data.  Overall, while domestic cost growth over the past year has been below that necessary for inflation to return sustainably to the 2% target, its pace can be expected to increase over time.”  The committee’s majority felt that inflation is sufficiently low and that a baseline forecast that sees such rising toward target is nonetheless surrounded by risks that are tilted somewhat to the downside.  Even McCafferty felt that “given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so only gradually and to a level lower than in recent cycles.”  It was again unanimously decided that the asset purchase program’s exhausted GBP 375 billion size would not be changed and that maturing holdings will be reinvested in order not to generate a back-door decline in the central bank’s balance sheet.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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