The Bank of England kept its interest rates on hold at 0.75 per cent on Thursday (13) and noted higher economic concerns about Britain’s move to leave European Union, a month after hiking rates only the second time in over a decade.
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the two per cent inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on Wednesday (12), the MPC voted unanimously to maintain Bank Rate at 0.75 per cent, according to a statement from the Bank of England.
The committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435bn.
In the MPC’s most recent economic projections, set out in the August inflation report, Gross Domestic Product (GDP) was expected to grow by around 1¾ per cent per year on average over the forecast period, conditioned on the gently rising path of bank rate implied by market yields at that time.
Although modest by historical standards, the projected pace of GDP growth was slightly faster than the diminished rate of supply growth, which averaged around 1½ per cent per year. With a very limited degree of slack remaining, a small margin of excess demand was therefore projected to emerge by late 2019 and build thereafter, feeding through into higher growth in domestic costs than has been seen over recent years.
The contribution of external cost pressures, which has accounted for above-target inflation since the beginning of 2017, was projected to ease over the forecast period.
Recent news in UK macroeconomic data has been limited and the MPC’s August projections appear to be broadly on track. UK GDP grew by 0.4 per cent in the second quarter of 2018 and by 0.6 per cent in the three months to July.
The UK labour market has continued to tighten, with the unemployment rate falling to 4.0 per cent and the number of vacancies rising further. Regular pay growth has risen further to around 3 per cent on a year earlier. CPI inflation was 2.5 per cent in July.
The global economy still appears to be growing at above-trend rates, although recent developments are likely to have increased downside risks around global growth to some degree. In emerging market economies, indicators of growth have continued to soften and financial conditions have tightened further, in some cases markedly, The Bank of England said in a statement.
Scott Bessent