Bank of England

March 16, 2017

The Monetary Policy Council agreed again to leave its Bank Rate at 0.25%, but the vote drew a dissent for only the second time in the past dozen meetings. The dissent by Kristin Forbes, who favored a 25-basis point rate increase to 0.50%, was the first one she has cast since joining the MPC. Policymakers released a statement that pretty much stuck to ground covered in February, when the last Inflation Report was published.

The MPC projects slower growth in the future but concedes perhaps not as much so as imagined previously. Inflation is projected to move above the 2.0% target soon and crest at 2.75% early next year. However, “the projected overshoot entirely reflects the expected effects of the drop in sterling. Pay growth has remained subdued, while measures of inflation expectations remain at levels broadly consistent with the achievement of the inflation target.” Because excessive inflation cannot be rectified quickly without subjecting economic growth to a jarring drag, officials are opting for a return to target that will take longer than usual. The statement cautions, however, that its patience for inflation above target is not endless and lists conditions that must hold or policy tightening could occur sooner than presumed:

  • The lower level of sterling continues to boost consumer prices broadly as expected, and without adverse consequences for expectations of inflation further ahead.
  • Regular pay growth does indeed remain modest, consistent with the Committee’s updated assessment of the remaining degree of slack in the labour market.
  • Hitherto resilient rates of household spending growth slow as real income gains weaken, without a sufficient offset by other components of demand.

The MPC was unanimous in extending other elements of monetary policy. These include a GBP 435 billion ceiling on its regular asset purchase program and a 10 billion pound limit on  sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves.

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



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