Bank of England Escalates Hint that Gradual Tightening is Coming Maybe Soon

September 14, 2017

 A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.  All members agree that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.

Following its latest monetary policy meeting, the U.K.’s Monetary Policy Committee issued a statement, observing somewhat stronger economic prospects since its August review, with the observance of unemployment at a 40-year low and a prediction that aggregate demand is likely to grow slightly faster than aggregate supply. CPI inflation in October is expected to exceed 3% versus 2.9% now.

The Bank of England base rate was kept at 0.25%, its level since a cut in August 2016. The limit on purchases of government security was not changed from GBP 435 billion, nor was the 10 billion pound amount of corporate bond purchases modified. But the attention-getting paragraph of the statement, replicated above, serves notice that the base rate target may be raised within the next few months. Such had been at 0.50% from March 2009 until the aforementioned halving in the summer of 2016. Indeed, two of the nine members of the Monetary Policy Committee once again voted for returning the rate level to 0.50% now. The next full quarterly policy review will be in November, and a meeting is also set for October.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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