BoE Split On Rate For Second Time; Signals Early Rate Hike
May 11 2017 - 4:59AM
RTTF2
The Bank of England's rate-setting body decided to hold the
record low interest rate steady on Thursday, again in a split vote
as a policymaker sought a hike.
Although seven members of the Monetary Policy Committee voted to
keep the rate unchanged at the May meeting, the bank signaled that
the rates need to be raised somewhat by a greater extent than
markets expect.
The MPC, governed by Mark Carney, voted 7-1 to maintain the bank
rate at 0.25 percent. Kristin Forbes sought a 25 basis point rate
increase for a second policy session in a row.
All other seven members said the current monetary policy setting
remained appropriate to balance the demands of the MPC's remit.
The committee also voted unanimously to maintain the asset
purchase programme at GBP 435 billion.
At the press conference, Carney said the current monetary
stimulus is appropriate, not excessive.
If the economy expands as estimated, then monetary policy could
need to be tightened by a somewhat greater extent over the forecast
period than the very gently rising path implied by the market yield
curve underlying the May projections, the bank said.
In the Inflation Report, the bank downgraded its 2017 growth
outlook to 1.9 percent from 2 percent, citing weakening household
spending. Growth for the second quarter was forecast at 0.4
percent.
Nonetheless, the bank lifted the growth projection for 2018 to
1.7 percent from 1.6 percent and that for 2019 to 1.8 percent from
1.7 percent.
Policymakers expect inflation to rise further above the target
in the coming months, peaking a little below 3 percent in the
fourth quarter.
The bank raised its inflation forecast for 2017 to 2.7 percent
from 2.4 percent. The projected overshoot entirely reflects the
effects of the falls in sterling since late November 2015 on import
prices, the BoE said.
For 2018, inflation is forecast to be 2.6 percent and 2.2
percent in 2019.
The latest forecast is based on the assumption that the
adjustment to the UK's new relationship with the European Union is
'smooth'.
The MPC meeting was conducted with eight members instead of nine
as the bank is yet to fill the vacancy caused by the resignation of
Charlotte Hogg.
James Smith, an economist at ING DiBa, said Forbes, who voted
for the rate hike today, leaves the committee in June. That will
make it harder to form a majority in favor of lifting rates.
The economist continues to expect policy to remain on hold until
Brexit talks conclude in 2019.
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