Bank of England

March 22, 2018

The surprising element is the latest monetary policy review was not that the Bank Rate was left at 0.5% or that no change was made to the stock of bank holdings of gilts and corporate bond purchases. It is that the decision to leave the interest rate as is drew dissenting votes from McCafferty and Saunders. There has already been one rate tightening done back in November 2017, and at the three policy reviews prior to the one that raise the Bank Rate to 0.5% from 0.25%, McCafferty and Saunders had also cast dissenting votes favoring a rate hike.

The nine-person Monetary Policy Committee released a statement today that defends the need for more rate normalization, lest inflation fail to slow to its 2.0% medium-term target. “Given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.” The February CPI figures reported this past Tuesday showed total inflation easing back to 2.7% from 3.0%, and core inflation dropping 0.4 percentage points to 3.6%.

The first rate hike of the cycle done in November 2017 merely reversed the post-Brexit referendum cut that officials implemented in August 2016.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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