Bank of England

May 10, 2018

The latest Monetary Policy Committee meeting ended without any change in the 0.5% Base Rate or in the Bank of England’s GBP 10 billion of corporate bond purchases and GBP 435 billion ceiling on gilt purchases. The released statement explaining this decision was accompanied by a new quarterly Inflation Report. After the MPC last reviewed policy in March, forward guidance kindled high expectations that the Base Rate would be hike at the May meeting, but such speculation was dispelled by a drumbeat of weaker-than-expected British data reports including GDP growth of just 0.1% last quarter (weakest since the final quarter of 2012), the softest reading for consumer confidence since January 2016, and a 17-month low in the economy’s manufacturing PMI. In the new documents, GDP is to expand only 1.75% per annum, but unused capacity is very limited. “The MPC judges that the impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought.  Taking external and domestic influences together, CPI inflation is projected to fall back slightly more quickly than in February, reaching the target in two years.  These projections are conditioned on a gently rising path for Bank Rate over the next three years.”

MPC members McCafferty and Saunders again dissented from the 7-person majority’s preference to peruse more data before hiking the Base Rate a second time. The first move, a doubling to 0.50%, was made last November.

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



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