Bank of England
December 15, 2016
A statement following the latest meeting of the Monetary Policy Committee reveals that policymakers voted unanimously to retain present policy parameters: a 0.25% Bank Rate, an incremental GBP 60 billion program of gilt purchases bringing such to a new limit of GBP 435 billion, and the planned purchase of GBP 10 billion of corporate debt. Officials saw no reason to change the overall framework of policy considerations nor the broad macroeconomic forecast of slower growth next year and a fairly rapid return of CPI inflation from 1.2% now to 2.0% within six months. Sterling depreciation is fueling higher inflation, but the impact will be temporary.
Sterling’s effect on CPI inflation will ultimately prove temporary and fully offsetting it would require exerting further downward pressure on domestic costs, including wages, and would therefore involve lost output and higher unemployment. The Committee continues to judge that such outcomes would be undesirable and, consistent with its Remit, that it would therefore be appropriate to set policy so that inflation returns to its target over a longer period than the usual 18-24 months.
Officials are watching the evolution of growth, inflation, supply, and sterling. The next policy change will hinge on the interplay of these factors and, at this point, officials are uncommitted to whether that change will involve less or more accommodation.
Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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